Today, with the latest inexorable turn of the calendar, the third quarter of 2024 comes to an end. It’s already over in Asia, where it was a wild one, and Europe is coming to a close as I write this. While there were some hiccups in global markets this quarter – August 5th should come to mind – this was another positive quarter for most equity indices, with rotation being a key theme.
Indeed “rotation” was a key buzzword for large portions of the past few months, and it becomes apparent that wide swaths of the global equity markets benefitted. Rotation, of course, implies divergent relative performances. If money is flowing into one sector or country into another, then by definition, it must either be flowing out of another or flowing in more slowly. For the quarter that is coming to an end, the latter was the case. Money still flowed into most equity markets, but the allocation was different than what prevailed for most of the prior quarters.
Exhibit A is the Nasdaq 100 (NDX), which is up about +1.5% for the quarter as I write this (late morning, EDT). The large-cap technology stocks that dominate that index have been stellar performers for quite some time. For comparison, NDX is up over +18% year-to-date. Not too shabby. But when we compare it to other US benchmarks, it is clear that many investors’ focus has moved elsewhere.
The S&P 500 (SPX) was up about 5% this quarter, and 20% ytd, solidly outperforming NDX, which it had lagged for months.
Meanwhile the equal-weighed calculation of SPX, SPW, is up nearly 9% this quarter, compared with just over 13% ytd. It is quite clear that the “other 493” did more than their share to push the US market higher. It is also obvious that the third quarter contributed mightily to that index’ performance.
The S&P Midcap Index (MID) also fared well, rising about 6.5% this quarter, versus 12% ytd, while the Russell 2000 owes almost all its year-to-date performance to the third quarter, when it rose about 8.5%, versus nearly 10% ytd.
Clearly, what we saw in the US was a very healthy rotation, since huge, less-loved swaths of the equity market benefitted disproportionately, but not at the expense of the prior winners. They did OK, just less so than the others.
European markets were up across the board. The Euro Stoxx 50 (ESTX50) was up 2.17%. The FTSE 100 was the laggard, up 0.89% for the quarter, while Spain’s IBEX 35 was the leader, up 8.53% for the period. Most were in the 2-3% range for the quarter, giving most of them 9-15% gains for the year so far. France’s CAC 40 is the biggest laggard on that basis, eking out 1.23% for the year thanks to this quarter’s 2.09% gain. It’s another reminder that elections have consequences.
But if you wanted action, Asia was the place to be. The Nikkei 225 snatched defeat from the jaws of victory, with this morning’s -4.8% drop, pushing the quarter’s return to -4.2%. (The plunge was caused by a change in ruling party leadership.) Even so, it’s still up 13.31% for the year. Remember, this was a quarter that saw the Nikkei plunge in early August, thanks to the messy unwind of the “carry trade” after the Bank of Japan raised rates more than expected. Some might consider a modest loss to be OK after the volatility.
However, if you’re looking for fireworks, China is the place. On Friday, we noted that country’s remarkable response to a blast of fiscal and monetary stimulus measures. The CSI 300 built upon last week’s 15.28% rally with another 8.48% today. That means that almost all of the quarter’s 15.52% gain, and the year’s 17.1% gain occurred in the past five sessions. Something similar can be said about Hong Kong’s Hang Seng Index, which rose 15.82% in the past week, pushing the quarter’s jump to 19.27% and 23.97% ytd. Less dramatic, but also 3Q weighted, we saw Australia’s S&P/ASX 200 rise 6.47% this quarter, the lion’s share of its 8.95% year-to-date rise.
Bottom line, with the exception of Japanese shares, and to a lesser extent, the megacap US tech leaders, investors did quite well this quarter. Vast swaths of global equities did either well, or extraordinarily well. The question for the coming quarter will be whether investors press their bets or take some money off the table after a stellar year. We’ll be revisiting that in the weeks to come.
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How can we join in with the big money when rotation occurs, and not get in too late.
The market being forward looking, is looking at what?
The fireworks in China may be over already, everything gapped up and collapsed today, resulting in a very bearish candle. Alibaba was a train wreck, anyone chasing it got hammered.
Staying with my prediction that the bloated US markets will take a big tumble soon.
The S&P 500 market cap is now almost $58 TRILLION, and of course three companies with a combined valuation of $10 TRILLION. Nvidia valuation is more than three Berkshire Hathaways.
The S&P is a LOCK to see 4500 again, and 4100-4200 is a coin toss.
It has got to happen. Something will happen. The air eventually comes out of every bubble.
Don’t agree entirely with the previous comment. Stock markets can stay irrational for much longer that investors can stay ………..interested. Without economic growth all asset markets are potentially a zero sum game. Money just flows from one to the other and prices swing accordingly. If the US stock market is in bubble territory then you have to ask yourself where will the money go if there is a sell off, and is that asset class cheaper fundamenetally. What would trigger a exodus from US equities to an alternative asset right now. Go to cash some might say. Cash is necessarily a safe option. It is about to become less attractive as interest rates and bond yields decline, and when markets are tumbling investors will be selling their assets in a fire sale with zero chance of benefitting from any reversal to the upside. What we are seeing, as the author described, is a flattening of valuation risk. A reduction in stocks with high multiples to ones with better long term fundamentals (cheaper). This is actually a sign of positive sentiment in equities. What is most likely to happen next in the US market is a period of consolidation allowing economic activity (earnings) to catch up with valuations, and not a steep sell off. This would make no sense, and would also lead us to the question: where do I put my money now? What asset class isn’t a bit volatile, risky and potentially over valued at the moment.
I’ve been burned by China stocks and of the lack of transparency has me gun shy. Where do you find valuations that can be trusted.