Chart of the month: S&P 500 price targets. At a price level of 5,460, the S&P 500 ended the first half of 2024 above every 2024 year-end price target from Wall Street strategists.

Source: Charlie Bilello and Bloomberg. Data as of 30 June 2024.

Global Market and Economic Update

Global equity markets ended the month higher, delivering strong returns for the second quarter of 2024. Inflation continued to moderate across most developed markets, fuelling expectations that their respective central banks will begin cutting interest rates. This risk-on environment led to significant gains, particularly in the US equity market, driven once again by strong performance from the US technology sector. However, developed market returns were not uniform, with Europe and the UK experiencing declines over the month. Emerging markets outperformed their developed market counterparts, with India producing strong returns following a perceived favourable outcome from the recent election. Turning to fixed income, yields declined (and prices increased), as moderating inflation strengthened expectations for interest rate cuts later this year.

Developed market central banks largely kept interest rates unchanged, barring the European Central Bank (ECB), which was one of the first large developed market economies to cut interest rates. The ECB lowered interest rates by 0.25% to 4.25% in June, in line with expectations, as inflation has cooled toward their 2% target. However, it’s worth noting that given the continued domestic price pressures, the ECB aims to keep policy rates sufficiently restrictive. There continues to be a divergence in the number of interest rate cuts priced into different developed markets as inflation has cooled quicker in some developed economies. The US Federal Reserve left the fed funds target range steady at 5.25%-5.50% for a 7th consecutive meeting in June 2024, in line with forecasts. Policymakers hinted that they do not expect it will be appropriate to reduce rates until they have gained greater confidence that inflation is moving sustainably toward the 2% inflation target. The Bank of England decided to maintain the Bank Rate at 5.25% during its June meeting, as expected. Interestingly two members advocated for a decrease to 5%.

Inflation in key economies generally came down this month, barring the Euro Area, where inflation rose. The annual CPI inflation rate in the US moved lower to 3.3% (year-on-year to the end of May 2024), compared to 3.4% in April, below market forecasts. The United Kingdom’s CPI inflation dropped to 2.0% (year-on-year to the end of May 2024), down from the 2.3% level recorded in April, in line with forecasts. The CPI inflation rate in the Euro Area moved higher to 2.6% (year-on-year to the end of May 2024), in line with market expectations. Prices rebounded for energy and rose for services, but slowed for food, alcohol and tobacco and non-energy industrial goods. The annual CPI inflation rate in China rose to 0.3% (year-on-year to the end of May 2024), below market estimates. It was the fourth straight month of higher consumer inflation prints, signalling an ongoing recovery in domestic demand.

Turning to unemployment numbers. Headline unemployment numbers remain low, however, the figures have been ticking higher recently. The unemployment rate in the US rose to 4.0% at the end of May 2024, ahead of market expectations. The unemployment rate in the UK ticked higher to 4.4% in May, ahead of expectations and was the highest reading since September 2021.

South African Market Update

South African asset classes produced strong returns this month, ahead of their developed market peers. The positive headline moves masked the volatile nature of risk assets this month, on the back of the uncertainty surrounding the formation of the Government of National Unity (GNU) and the respective cabinet appointments. Overall, markets ended the month on the front foot as risk-on sentiment coupled with strong foreigner flows led both South African (SA) equities and bonds higher. Local equities, and particularly “SA Inc” stocks moved higher, driven by domestic focused sectors. On the other hand, SA resources moved lower as pressure on commodity prices filtered through to underlying stock performance. Given the risk-on environment, SA property counters moved higher this month, driven higher by SA focused counters. South African bonds had their second-best Q2 return in 22 years, as bonds were a beneficiary of foreign inflows on the back of SA election risk subsiding. Given the risk on environment, the rand strengthened against the major crosses this month.

The strength in SA equities was largely driven by the Financials sector, particularly SA banks and insurers. Capitec (+23.4%), Discovery (+22.8%) and Firstrand (+18.3%) produced strong double-digit returns this month. SA retailers also benefitted from the risk-on environment, with Foschini (+34.2%) and Mr Price (+16.0%) producing strong returns. SA rand hedges produced poor returns, with Richemont (-4.5%) and Prosus (-3.6%) leading the way lower and giving up some of the strong gains recorded in May. Further weakness was seen in the Resources sector, which fell on the back of weaker commodity prices. Platinum and gold miners, including Impala Platinum (-5.7%) and Gold Fields (-6.6%), saw significant declines, dragging the Resources basket lower.

Local bonds ended the month higher, as yields ticked lower (and prices higher) over the month. The positive bond moves masked the volatile nature of SA nominal bonds this month. During the first half of the month SA bonds recorded strong gains as the election risk premium subsided. However, towards the end of the month and amid the initial failure by the parties to agree on cabinet positions, SA bonds posted one of the largest one-day spikes in SA yields in 24 years. Despite the sell off, we saw strong returns over the month for South African bonds.

Local listed property moved higher during June, producing strong returns. Index heavyweights and SA focused counters including Redefine (+12.0%) and Growthpoint (+10.8%) produced double digit returns this month, leading the sector higher.

South African Economic Update

South Africa’s annual inflation rate remained at 5.2% (year-on-year to the end of May 2024), in line with market forecasts. Inflation remains above the central bank’s preferred level of 4.5%. Higher rates were recorded for transport, alcoholic beverages, tobacco and recreation and culture. The core inflation rate, excluding volatile items such as food and non-alcoholic beverages, fuels, and energy, remained at 4.6% (year-on-year to the end of May 2024).

The South African Chamber of Commerce and Industry (SACCI) business confidence index fell to 107.8 in May 2024, down from 108.9 in April and an over one-year high of 114.7 in March 2024. The latest reading indicated a second consecutive month of declining business sentiment, negatively impacted by the uncertainty surrounding the domestic elections.

The headline news event from a South African perspective was the outcome of the coalition talks between the larger parties after the South African election as well as the cabinet announcement this month. South Africa officially formed a government of national unity (GNU), with 11 political parties agreeing to be part of the GNU in parliament. These include the African National Congress (ANC), Democratic Alliance (DA), Patriotic Alliance (PA), Inkatha Freedom Party (IFP), Good Party, Pan Africanist Congress of Azania (PAC), Freedom Front Plus (FFP), United Democratic Movement (UDM), Al Jama-ah, Rise Mzansi and the United Africans Transformation. The resultant GNU announcement was well received by local equity and bond markets this month.

See below for a summary of the key market movements for the month of June:

• The JSE All Share Index (+4.1%) ended June higher, driven largely by the Industrials and Financials indexes.
• The performance from South African equities was mixed, with the Financials and Industrials sectors ending in positive territory, while Resources ended the month lower. Financials (+14.5%) drove the bulk of the performance on the back of strong performance from SA banks and life insurers. Industrials (+1.9%) produced a positive return, with SA retailers producing strong performance. Resources (-3.6%) ended in negative territory, driven lower by the platinum and gold counters.
• Listed property (+6.0%) ended the month higher, on the back of strong performance from local focused counters including Growthpoint and Redefine. Local listed property continues to be the best performing local asset class on a one-year basis.
• Local bonds (+5.2%) ended the month higher, in a particularly volatile month for the South African bond market. Yields moved broadly lower on the back of the positive announcement of the formation of the GNU.
• Cash continues to yield a positive return. Cash delivered +0.6% in June.

• Most of the major developed equity markets ended the month with mixed returns, with the US leading the way higher. The MSCI World Index delivered a return of +2.1%, which was behind emerging market peers.

• Emerging equity markets produced mixed returns this month on the back of poor performance from Brazil and China. On the other hand, India’s equity market produced a strong return, adding to the performance of the emerging market basket. The MSCI Emerging Markets Index ended the month +4.0% higher in June.
• Performance from developed equity markets varied, with the US leading the way higher and other equity markets struggling to gain traction. Germany’s FSE DAX (-2.7%), the UK’s FTSE 100 (-1.8%)and the Shanghai SE Composite (-4.2%) all ended in negative territory. On the other hand, The Nikkei 225 (+0.6%) managed to eke out a positive performance in the month of June. 
• US equities moved higher in June, continuing their strong run. The tech-heavy NASDAQ 100 (+6.3%) posted a robust return in June and is up over 30% over the past year. The S&P 500 (+3.6%) also ended the month higher, as most sectors ended in positive territory.

• In terms of the major commodities, Gold (-0.7%), Copper (-4.5%), and Platinum (-3.4%) ended the month in negative territory.
• The rand strengthened against the major crosses this month. The currency gained ground against the US dollar (+3.0%), the pound sterling (+3.7%) and the euro (+4.3%) during the month. 

*All data is sourced from Morningstar Direct as at 30/06/2024. The performance of South African asset classes is quoted in rands and the performance of global asset classes is quoted in US dollars.

**Please note there was a problem pulling the oil price this month and it was excluded from the commentary and market performance summary