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Market Insights June 2024

June 10, 2024
Harvest News

Current Topics in Markets

The recent earnings reporting season in the US delivered for investors, with earnings disappointments few and far between. In particular, the closely watched mega tech companies have been generally holding up their end, with Nvidia, Meta, Alphabet and Microsoft all beating market expectations. Aside from the numbers, what was particularly interesting in the outlook statements from these companies has been their plans in relation to AI. Apart from Nvidia which is essentially 100% AI, the other three companies highlighted  plans to increase capital expenditure in the current year by 38%, 52% and 57%, primarily driven by AI. In dollar terms this equates to a massive spend of US$130 billion combined. Given the reach of these companies, it is not a stretch to say that this will have implications for virtually every citizen on the planet.

The outlook for interest rates has naturally continued to be a primary focus for markets. The ECB has just delivered its first interest rate reduction and we would expect one more cut before the end of the year. The strength of the US economy has pushed out the prospect of interest rate reductions until later in the Summer or beyond that. Overall, the picture is shaping up to be a relatively benign one for financial markets over the coming months. Actual or prospective rate reductions will be good news for bonds while equities should benefit from an improved economic picture.

Equity Markets

2024 has so far proven to be a year to hold equities with all major markets delivering high single digit returns year to date. Even China, which had languished in the first quarter due to consumer confidence worries among other factors, staged a strong recovery in April and moved further ahead in May. Between the two months, the Hang Seng index is ahead by almost 10%. Most other markets fell to varying degrees in April and then recovered some or all of that ground in May.

If major geopolitical events can be avoided, we would expect equity markets to remain relatively stable over the coming months. While we still have valuation concerns around the bigger end of the US market, those valuations would appear to here to stay for some time at least. Elsewhere, there is convincing value to be found in equities, and for those clients happy to take a long term view, the returns should not disappoint.

Bonds

As we have said previously, having offered investors very little for a long period when interest rates were on the floor, the current value in bond markets is hugely convincing. The pace of rate reductions is highly uncertain but the trend over the next couple of years is not. As interest rates are adjusted downwards, investors can expect decent capital gains from bonds and while they wait for such gains to arise they can enjoy an income yield of 5% or better from a portfolio of bonds, without needing to take on significant risk.

Property

Property continues to be the unloved asset class and is likely to remain so for quite some time yet. The underlying picture however, is nothing like as bad as the negative sentiment would suggest. Office usage and occupancy levels are virtually back to pre covid levels across Europe (but not Ireland and not the US) while many other subsectors of property including residential, logistics and healthcare are thriving. On a selective basis, property remains a reliable source of income for investors. Once again as rates are reduced over the medium term, property values should be a direct beneficiary.

Alternatives

Both as a source of income and of lower volatility, alternative asset classes such as infrastructure, hedge funds and renewable energy have a place in most portfolios. We continue to favour exposure to these asset classes for clients looking for income and low correlation to broader financial markets.

Our Fund in Focus for June 2024 is Artemis Short-Dated Global High Yield Bond

As always, you should only consider the investment views contained in this June Market Insights update in the context of your own attitude to risk and how such choices might impact your Asset Allocation model. Should you wish to discuss your investment portfolio, please contact Harvest Financial Services on 01 2375500 or email justask@harvestfinancial.ie.

This marketing information has been provided for discussion purposes only. It is not advice and does not take into account the investment needs and objectives, financial position, risk attitude, liquidity needs, capital security needs and/or capacity for loss of any particular person. It should not be relied upon to make investment decisions.
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Warning: The figures refer to the past. Past performance is not a reliable indicator of future results.
Warning: The value of your investment may go down as well as up. You may get back less than you invest.
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