Global stock markets were highly mixed in June, ending the second quarter of the year with mixed results. The information technology and communication services sectors booked strong gains while basic materials, energy and utilities sectors suffered losses. Europe underperformed the United States on uncertainty caused by the announcement of parliamentary elections in France and dwindling expectations for steep interest rate cuts.

US shares gained in Q2, led higher by the information technology and communication services sectors. Ongoing enthusiasm around AI continued to boost related companies amid some strong earnings and outlook statements. Weaker sectors included materials and industrials. In Q2 the S&P500 and Nasdaq Composite indexes gained 3,92% and 8,26% respectively, boosted by the performance of the Big 7 (Microsoft, Alphabet, Nvidia, Meta, Amazon, Apple, Tesla), which represent a significant weight in those indices. The Dow Jones on the other hand, which contains more traditional stocks, dropped 1,73% in Q2, highlighting the difference in sector performances. A similar picture took place in the month of June with the S&P gaining 3,47%, the Nasdaq 5,96% and the Dow Jones just 1,12%.

In Q1 US GDP growth slowed down to 1,4% and the labor market is revealing its first crack as the unemployment rate climbed to 4,1% for the first time since 2021. Annual US inflation remained elevated at 3,3% in in May. GDP growth, low unemployment and persistent inflation do not yet allow for a reduction in interest rates. Only one cut is still expected later this year.

European indices generally dropped in Q2 with the DAX, CAC and Eurostoxx losing 1,82%, 8,85% and 3,73% respectively. Political risks are increasing, especially after the rise of right-wing nationalist parties in the European parliamentary elections. Particularly French stocks were hit hard in June as President Macron unexpectedly called for early elections with the right-wing Front National threatening to gain the majority. On the bright side, the Eurozone has so far managed to avoid a recession with annualized GDP ticking up to 0,3% in the first quarter. The ECB has also applied its first interest rate cut, bringing it down from 4,50% to 4,25%. However with inflation and particularly core inflation still being resilient, further rate cuts are not expected in the near future, which also kept pressure on the markets. One of the few exceptions in the Eurozone was the Slovenian SBITOP index which added 7,49% in Q2 and 5,61% in June alone.

Mexico stood out among the developing markets in June, also as a result of elections. The unexpectedly high electoral victory of the socialist party Moreno in the Mexican parliamentary elections enables a two-thirds majority in Congress and thus also the possibility of constitutional changes, which caused a great selling pressure on the Mexican stock market.

Shares in China also achieved strong gains in the quarter, as low valuations for many Chinese stocks encouraged Asia-focused investors to cautiously return to the Chinese market following concerns about India's high valuations and Japan’s continued currency weakness. Hong Kong's Hang Seng index added 7,12% gain in Q2. June alone however saw the index drop by 2%.

As a result of the uncertainties surrounding interes trate decisions, gold remained elevated and closed June at 2339,6 dollars per ounce. Crude oil remained firmly above 80 dollars per barrel although concern on weakening demand currently prevents it from increasing.

Rudy Marchant
Fund manager Primorski skladi

Monthly reports - June 2024