Colivar Weekly Market Pulse  for SwissFinTechLadies(by Dr. Mahnoosh Mirghaemi)

Market Movers and Investment Insights

The stock market has had an impressive start to 2024, driven by positive economic data and the anticipation of Federal Reserve rate cuts. Historically, such strong first-half performances have led to above-average annual returns. Mega-cap technology stocks led the way due to AI excitement, while defensive sectors like utilities and Gold also saw robust gains. In contrast, volatility was low, and small-cap equities underperformed. Here is a detailed look at key players in the first half and what might lie ahead, including insights from European markets and investment opportunities.

Sizzling Stocks: The Winners of H1 2024

The S&P 500 jumped 15% in the first half, marking one of the best starts in the last 35 years. Typically, years with strong first-half gains continue to perform well, with historical full-year returns averaging 29% when first-half gains exceed 10%. Although the second half may not replicate these gains, continued growth is possible, supported by the Fed’s policies and rising corporate profits.

The Euro Stoxx 50 mirrored the upbeat sentiment in Europe, climbing approximately 10%. European markets benefited from stabilising energy prices and improved economic outlooks, particularly in Germany and France. The ECB’s cautious approach to interest rate hikes also bolstered investor confidence.

Calm Waters: Volatility Takes a Backseat

If you are a fan of market swings, 2024 has been uneventful. The VIX index, which measures market volatility, hit its lowest daily reading since 2019, with an average level of 13.8, the lowest since 2017. The largest market pullback was just over 5% in April, quickly rebounding due to positive economic data. Despite the calm, expect some turbulence ahead due to upcoming elections and economic data releases.

In Europe, volatility was similarly muted, with the VStoxx index reflecting a tranquil market environment. However, uncertainties around the French legislative elections and ongoing Brexit negotiations could stir volatility in the second half of the year.

AI Surge: Tech Titans Continue to Dominate

AI enthusiasm propelled mega-cap tech stocks like NVIDIA, Microsoft, and Apple. NVIDIA’s shares soared by 150%, showcasing AI’s significant impact on corporate profits and economic growth. The technology and communication services sectors led first-half returns with over 25% growth. While valuations are high, AI’s long-term benefits are expected to sustain economic and market growth.

Europe’s tech sector also experienced gains, albeit more modest than those in America. Companies like ASML Holding and SAP benefited from the global tech rally, underscoring the continent’s critical role in the semiconductor and enterprise software markets.

Small-Caps Struggle: The Underdogs of the Market

Small-cap equities lagged, impacted by higher funding costs and weaker earnings growth. With less exposure to tech and communication services, small-caps posted modest gains. Historically, underperformance is often followed by a rebound, suggesting potential for small-caps to recover, contingent on declining interest rates, easing Fed policy, and accelerated economic growth.

In Europe, small-cap stocks followed a similar pattern, underperforming their larger counterparts. The Russell 2000 European equivalent, the STOXX Europe Small 200, saw limited gains. The recovery of small-caps will depend on economic stabilisation and improved investor sentiment.

Defensive Plays: Utilities and Gold Shine

Despite a tech-driven market, traditionally defensive sectors like utilities, consumer staples, and Gold performed strongly. Since mid-February, utilities and Gold have risen by approximately 15%. This reflects a rotation towards more defensive sectors amid broader market gains. As economic growth slows, defensive investments may continue to perform well.

European defensive sectors also saw gains. The utilities sector, represented by companies like Engie and Iberdrola, benefited from stable cash flows and investor demand for safety. Gold’s appeal as a hedge against economic uncertainty remained strong, particularly amid geopolitical tensions in Europe.

Rate Cut Predictions: A Volatile Forecast

Rate Cut Predictions: A Volatile Forecast

Interest rate predictions fluctuated, with early expectations for multiple Fed rate cuts revised due to persistent inflation. Longer-term rates rose and then fell, reflecting adjustments in Fed policy expectations. Moving forward, rates are expected to gradually decline, supported by moderating inflation and easier Fed policies. The Fed’s cautious approach will likely continue, with potential for rate cuts later in the year.

The European Central Bank (ECB) maintained a cautious stance, balancing between controlling inflation and supporting economic growth. Interest rate policies across Europe remained a critical factor, influencing market expectations and investor behaviour.

What’s on the Horizon?

As we move into the second half of 2024, investors should maintain a diversified portfolio and stay optimistic yet realistic about market prospects. The coming weeks will be crucial, shaped by inflation data, corporate earnings, and geopolitical events. While the market has started strong, a prudent approach will help navigate potential challenges and opportunities.

In Europe, the outcome of the French legislative elections, Brexit developments, and the ECB’s policy decisions will be pivotal. Investors should prepare for potential volatility and seek opportunities in both defensive and cyclical sectors. The overall outlook remains cautiously optimistic, expecting continued growth and moderate gains.

In conclusion, as we move into the second half of 2024, the market outlook remains cautiously optimistic, with growth expected across various sectors and regions. Investors should focus on maintaining a diversified portfolio, taking advantage of opportunities in technology and AI for their innovation and growth potential, and defensive sectors like utilities and Gold for stability amid volatility. Mid-cap stocks present value opportunities, especially those with strong fundamentals poised for recovery. Additionally, keeping an eye on European markets, influenced by political developments such as the French elections and Brexit, can offer strategic diversification. Lastly, balancing fixed-income investments with a mix of short-term and long-term bonds will help navigate the changing interest rate environment. Investors can effectively manage risks and capitalise on opportunities in the evolving market landscape by staying informed and strategically diversifying.