Mercer Commentary – July 2024

Mercer – Selected Market Indicators Report – July 2024

July was a pivotal month for markets, as the all-time highs we’ve seen throughout 2024 came to an end. Markets processed a weaker than expected US CPI reading early in the month, combined with weaker US labour market data, and political developments. As a result, bond investors were reassured that the Fed will begin cutting intererst rates in the near term. The US earnings season continued with four of the ‘magnificent seven’ reporting underwhelming results for the previous quarter, resulting in the tech sector coming under pressure for most of July before a rebound into month end, as investors begin to question the profitability of the recent AI hype.

Small-cap companies which typically outperform large caps in declining interest-rate environments, benefited from investors moving out of the mega-cap technology stocks that have led the U.S. equity market rally so far in 2024. Global commodity prices, as measured by the Bloomberg Commodity Index, fell 4.1% despite the escalating conflict in the Middle East. The WTI Crude Oil price declined 4.2% amid concerns that China’s slowing economy could hamper demand for oil in the second half of this year.

Significant developments for July:

• The Bank of Japan raised its policy rate by 15 basis points to 0.25% in July, the highest level since 2008, stating that it will reduce the pace of Japanese Government Bond (JGB) purchases by 400 billion yen per quarter starting in August.

• On July 13, former US President Donald Trump was wounded in an assassination attempt during a campaign rally, however this event did not impact the markets as many other factors are driving stocks’ performance.

• Joe Biden ended his presidential re-election campaign on July 21 and endorsed Vice President Kamala Harris to replace him. Investors should brace themselves for political risks as the U.S. election in November draws closer.

• The European Central Bank (ECB) left its benchmark interest rate unchanged at 4.25% following its meeting in July but hinted that there could be a rate cut in September.

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