Global stock markets were generally positive in September and throughout the third quarter of the year. Unlike previous quarters, the information technology sector lagged behind other sectors as enthusiasm around Artificial Intelligence was subdued following earnings reports of companies such as Alphabet, Microsoft and Nvidia in late July. Lower than expected near-term growth prospects and high capital expenditures provided a reality check that AI growth is a long-term objective that requires heavy investment.

A worse than expected jobs report in the USA in early August then triggered a sharp but short-lived global market correction. However by the end of September the correction had already been regained. Also the energy sector underperformed in Q3 as the oil price (WTI oil futures) dropped 16,4% to 68,17$ per barrel due to higher supplies and lower demand. Since then the oil price has partially recovered as tensions in the Middle East worsened following Iran's missile attack against Israel on October 1.

In the USA the Dow Jones, S&P500 and Nasdaq Composite indexes gained 1,85%, 2,02% and 2,68% respectively in September. During entire Q3, they gained 8,21%, 5,53% and 2,57% respectively, illustrating how the more traditional stocks of the Dow Jones outperformed the stocks of the tech-heavy Nasdaq. Annual GDP growth picked up again from 1,4% in Q2 to 3,0% in Q3. The unemployment rate, which popped up well above expectations to 4,3% in July meanwhile settled down to 4,1% again. Meanwhile inflation dropped to 2,4% while core inflation stubbornly remains at 3,3%.

Nonetheless the Federal Reserve followed in the ECB's footsteps and lowered the interest rate for the first time since 2020 by a 0,50 percentage points. The stronger than expected cut, for which one the members of the FED objected to vote, is causing some anxiety that it may push inflation higher again, but so far the move has been positively received by the market. The interest rate cut also caused gold to reach a new all-time high, nearly touching $2700 per ounce, and gaining 5,70% in September and 13,67% throughout Q3. The dollar on the other hand devalued by 3,93% against the Euro in Q3.

In Europe indices also gained with the German DAX outperforming the other main European indices. In September the DAX, CAC and Eurostoxx gained 2,21%, 0,06% and 0,87% respectively. In Q3 they gained 6,44%, 2,09% and 2,17% respectively.

Eurozone's annualized GDP growth lowered to 0,2% in Q2 from 0,3% in Q1 with its largest economy (Germany) struggling to remain out of recession. In September the ECB has lowered its Deposit Facility Rate for the second time, bringing it down from 3,75% to 3,50%. Another cut is expected this month to 3,25%.

Inflation is no longer the ECB's main concern as it ticked below 2% for the first time since 2021. Also core inflation continues to steadily drop and stood at 2,7% in September.

The biggest winner in September however was China. After the Chinese government announced a large package of fiscal and monetary stimulus measures to boost economic growth, causing a massive inflow of foreign capital into their stocks. As a result the Hong Kong Hang Seng index gained a staggering 17,48% in September. Given that Chinese and Hong Kong stocks have underperformed other markets for years, they are still well below their peak values achieved in 2018 and 2021. How they'll continue to perform mostly depends on whether China will push for additional stimulus measures to keep the momentum going.

Rudy Marchant
Fund manager Primorski skladi

Monthly reports - September 2024