As we move into the final quarter of 2024, Eamonn Lynch DipPFS reflects on the market developments and trends from Q3, which have been marked by significant activity, volatility, and economic adjustments.

Economic Overview: Global Slowdown Weighs on Markets

Q3 saw a noticeable global economic slowdown, with key economies such as the US, the Eurozone, and China experiencing reduced growth momentum. For the UK, inflation remained a critical issue, although there were positive signs of easing from the peak levels seen in 2022 and early 2023.

In the UK, GDP growth slowed to a marginal 0.2% in Q3, with consumer confidence remaining muted due to persistent inflation and higher interest rates. The Bank of England (BoE) maintained its hawkish stance, keeping interest rates elevated at 5% as it continues its battle to curb inflationary pressures. While inflation has started to cool, the cost-of-living crisis continues to weigh on households and businesses, dampening economic growth prospects.

UK Equities: A Mixed Performance

UK equities delivered mixed performance in Q3 2024. The FTSE 100, traditionally seen as a defensive index, showed resilience despite the broader macroeconomic headwinds, although it did lag behind its global peers. It managed a modest gain of 1.3%, benefiting from its exposure to sectors such as energy, utilities, and healthcare, which were buoyed by higher commodity prices and steady demand.

Mid-cap stocks, represented by the FTSE 250, faced more significant challenges, ending Q3 down 2.8%. This decline was largely driven by concerns over domestic growth, the impact of higher borrowing costs, and ongoing uncertainty regarding trade negotiations with key partners like the European Union.

Key winners in the equity markets included energy and mining stocks, which benefited from higher oil and commodity prices driven by supply constraints and geopolitical tensions. Meanwhile, sectors such as real estate and consumer discretionary faced headwinds, with the rising interest rates putting pressure on property values and consumer spending.

Fixed Income: Bond Yields Remain Elevated

The fixed income market saw bond yields remain at elevated levels throughout Q3, as central banks globally kept interest rates higher for longer than many market participants had anticipated. UK 10-year gilt yields hovered around 4.8%, reflecting the ongoing inflationary pressures and expectations of further monetary tightening.

Corporate bonds, especially in the investment-grade segment, managed to hold up well, providing some attractive yields for income-seeking investors. However, high-yield bonds experienced some volatility, as the uncertain economic outlook raised concerns about default risks for companies with weaker balance sheets.

Global Markets: Divergence Between Regions

On the global stage, markets exhibited considerable divergence in performance during Q3. US equity markets, led by the tech-heavy NASDAQ, posted relatively strong gains, bolstered by a robust earnings season for major tech firms and optimism surrounding artificial intelligence (AI) advancements. The S&P 500 gained 4.7% over the quarter.

In contrast, European markets underperformed, with the Euro Stoxx 50 falling by 1.9%, weighed down by concerns over slowing growth, particularly in Germany. China’s economy, meanwhile, continued to struggle with its post-pandemic recovery, as weakening property markets and reduced consumer spending dampened overall market sentiment.

Emerging markets also faced pressure, particularly as rising US Treasury yields made risk-free assets more attractive, leading to capital outflows from emerging economies.

Currency Movements: The Pound’s Struggles

Sterling faced a tough quarter in Q3, depreciating against both the US dollar and the euro. The pound fell by around 2.5% against the US dollar, largely due to the BoE’s more cautious approach to rate hikes compared to the US Federal Reserve. The dollar remained strong throughout the quarter, benefiting from higher US interest rates and its status as a safe-haven currency during times of uncertainty.

For UK investors with overseas exposure, the weaker pound provided a slight tailwind for global portfolios, as foreign assets became relatively more valuable when translated back into sterling.

Commodities: Energy Prices Surge

One of the defining features of Q3 2024 was the surge in energy prices, particularly oil and gas. Brent crude oil prices jumped by over 15% during the quarter, rising from $82 per barrel in July to above $95 per barrel by the end of September. This increase was driven by supply cuts from major oil-producing nations, particularly Saudi Arabia and Russia, coupled with sustained global demand.

Natural gas prices in Europe also saw a sharp increase, driven by concerns over potential supply disruptions ahead of the winter season, with prices rising by 25% over the quarter. The rising energy costs have renewed inflationary concerns, particularly in Europe and the UK, which remain heavily reliant on energy imports.

Outlook for Q4 2024 and Beyond

As we enter Q4 2024, the outlook remains uncertain, with several key risks and opportunities on the horizon. Central banks, particularly the BoE and the US Federal Reserve, will continue to be in focus as they navigate the delicate balance between curbing inflation and avoiding an economic downturn.

While challenges remain, opportunities for growth still exist for those with a well-considered, long-term approach to their investments.

If you would like further information or advice, please contact your financial adviser.