Monthly economic and market review: June 2024

The screeching of nails on a chalkboard may have been a little easier on the ears of US Democrats than the ramblings of their leader in the first televised US presidential debate held at the end of June. In what many billed as “the worst presidential debate in US history”, onlookers, both foreign and domestic, could only shudder at what might play out with the November US elections and the four years thereafter. In a year with a historical number of elections around the globe, politicians took centre stage in June. UK prime minister Rishi Sunak debated opposition leader Sir Keir Starmer ahead of the 4 July elections where Labour is expected to oust the Conservatives by a significant margin. The snap election called by French president Emmanuel Macron saw Marine Le Pen’s far-right National Rally party win the first round of voting with the left-wing New Popular Front alliance finishing second and Macron’s centrist Ensemble coalition trailing in third. A second round of voting on the first weekend of July should, however, decide the outcome as Macron looks to the left for additional support.

At home, the final results of the late May general election were announced in early June and with the ruling ANC party losing its majority, a coalition government was inevitable. The markets feared the worst after the strong showing of Jacob Zuma’s MK party but the more extremist parties were sidelined from government positions as the leading parties agreed to form a more centrist government of national unity (“GNU”). The ensuing euphoria in the domestic markets was a mix of pure relief and a dash of optimism about what could be achieved in our country with strong leadership and actual delivery and execution. In three trading days in mid-June, the FTSE/JSE All Share index added 4,331 points or 5.7% to close at a level of 80,713 points on 19 June, just 78 index points shy of the all-time high of 80,791 points achieved on 27 January 2024.

The movement on the bond market was just as remarkable with the yield on government’s 8.25% R2032 bond maturing in March 2032 plummeting over 11 trading days from 11,58 on 5 June to a level of 10.48 on 21 June. That decline of 110 basis points amounted to a capital gain of 4.75%. Over the same period, the rand gained substantial ground against the US dollar, appreciating from R18.97/$ to R17.95/$. The markets did give up a little of their gains as the excitement wore off but the R2032 closed the month out at a yield of 10.70 and the FTSE/JSE All Share Index closed at 79,707 points for a gain on the month of 3.9% (see blue line between the red bars in the graph below). June’s positive return of 3.9% on the JSE pushed the index back into the black for the year-to-date (“YTD”) with a return for the first six months of the year of 3.7%. The rand closed out the month at R18.26/$ after starting the year at R18.29/$. The much-anticipated announcement by President Ramaphosa of his Executive Cabinet came in the dying hours of the month and so had no bearing on the markets in June.

FTSE/JSE All Share index (blue, RHS) and S&P 500 index (green, LHS): 12 months to 30 June 24

Source: Factset

US markets were once more driven by the technology stocks as the Nasdaq Composite index added 5.96% in June and the S&P 500 index (green line in the graph above) closed 3.47% higher. With five out of six months of positive returns, the S&P 500 closed out the first half of the year 14.5% higher. The market gains came despite a more hawkish outlook from the Federal Reserve Bank. Members of the Federal Open Market Committee (“FOMC”) voted to maintain the interest rate status quo but revised their policy rate expectations from two cuts in 2024 to just a single cut before year-end. The market took this move in its stride as inflation moderated slightly (see table below) and labour market and economic activity data softened a little. At the end of June, the interest rate market was pricing in a 66% chance of a first rate cut in September. The European Central Bank (“ECB”) cut its main refinancing rate at the start of the month (as had been telegraphed for some time) to be the first of the major developed economy central banks to cut interest rates. The ECB did signal, however, that it was not embarking on a programme to cut rates at every meeting and that it would remain vigilant and potentially provide further easing once every quarter. In the UK, headline CPI hit the target of 2.0% in the month but the Bank of England is likely to only start easing on the Bank rate after the general elections. September is starting to look like a month where we could see numerous central banks loosening monetary policy via the lowering of interest rates.

With the ECB cutting rates first and with Europe experiencing some political turmoil, the US dollar strengthened from $1.09/€ to $1.07/€ over the month. The impact on the gold price wasn’t marked but commodities generally had a weaker month in June (refer table below). The platinum group metals lost ground, bulk commodity prices such as those of iron ore and coal were lower and even copper prices, which have been fuelled by the Artificial Intelligence (“AI”) boom, were down in June. The notable exception was in the oil market where Brent Crude oil prices rose from $79.41/bbl to $84.99/bbl. The OPEC+ group of oil-producing countries extended their output cuts into next year although on the ground, production actually increased in June. The expectation though of potential supply deficits during the coming northern hemisphere summer and the looming US driving season pushed crude prices higher with Brent Crude gaining 7%.

The so-called “SA Inc” stocks or those whose fortunes are more closely tied to the fortunes of the South African economy, had a bumper month following the announcement of a potential government of national unity. The local retailers, banks and insurers were all carried higher in the excitement as the market gained 3.5% on the 18^th of June and another 1.2% the day thereafter. The table below reflects some of the JSE’s biggest gainers and losers in June and for the YTD. The major banks all make the gainers list for June apart from Absa which published a weak trading update that dragged the share lower. From a starting price of R149.17, the Absa share price rose to a peak of R183.40 during the market frenzy before closing the month out at R158.45. While the Foschini ship was carried higher by the rising SA tide, the market also took a shine to their annual results published on the 7^th of June. Earnings were essentially flat but revenue, gross profit and operating profit before financing costs all reached record levels. Even with higher financing costs, the company declared a 200cps final dividend which was 33.3% higher than the year before. The resources companies were completely absent from the monthly top 20 gainers list in June but were very prevalent on the losers list. Lower commodity prices and a stronger rand created significant headwinds for the mining and materials companies in the month.

The rally in the local economy stocks in June helped lift many of them into the top twenty list of gainers for the YTD and that list is spread more broadly across the market sectors. Gold counter Harmony (+40.5%) tops the list with AngloGold Ashanti (+30.1%) also near the top of the list. The bid for Multichoice by Canal+ lifted that stock almost 32% in the year and those gains should hold as the protracted corporate action runs its course. BHP Group’s bid for Anglo American in April added R140 to the Anglo share price in very quick time but when BHP walked away in May, the share price fell back quickly but not to its original level. At end-June, Anglo American was still up 21.8% for the YTD. The biggest losers in 2024 so far include the platinum miners, the focused iron ore and coal miners, diversified resources companies BHP and Glencore, oil and chemicals company Sasol, paper-producer Mondi and all of the big telecommunications companies.

The S&P 500 index gained 4.8% in May and that momentum continued into June. The 3.5% return in June lifted the index to a total gain of 14.5% for the YTD. The large capitalisation technology stocks did the heavy lifting once more with the technology sector up 9.3% in June. Nvidia (+12.7%) outperformed the sector and at one point in the month topped a market capitalisation of $3 trillion to become the world’s most valuable company. Nvidia endured a rocky patch toward the end of the month and that allowed Microsoft (+7.7%) to regain its most valuable company status. The AI and semiconductor theme remained prevalent in the month with the likes of Broadcom up 20.8% in June. Apple’s announced plans to integrate AI into its mobile devices was well received by the market and pushed the counter up 9.6% in June. The impact of the mega-capitalisation companies on the index is evident when the performance of the S&P 500 (+3.5%) is compared to that of the equal-weighted S&P 500 (-0.9%). Other sectors that outperformed the overall S&P 500 index in the month included Consumer Discretionary (+4.8%) and Communication Services (+4.7%). The underperforming sectors included Materials (3.3%), Healthcare (+1.8%), Real Estate (+1.3%), Industrials (+1.1%), Financials (+1.0%), Consumer Staples (+0.5%) and Energy (-1.4%). The table below highlights some of the bigger winners and losers from amongst the 100 largest companies in the S&P 500 in June and for the year-to-date. Nvidia extended its gains for the year to 150% to remain top of the pile while Nike’s poor quarterly results and strategy U-turn saw the counter down 20.7% in June and down 30.6% for the YTD.  

Second quarter earnings season in the US is around the corner and should kick off in the second week of July. According to the FACTSET consensus of analyst forecasts, Q2 earnings are expected to increase by 8.8% y/y after the 5.9% y/y growth recorded in the first quarter. Eight of the 11 market sectors are expected to report positive year-on-year growth in earnings with Communication Services (+18.5%), Health Care (+16.9%) and Technology (+16.1%) leading the way. Declining earnings are forecast in Materials (-9.3%), Industrials (-3.3%) and Consumer Staples (-0.2%). The table below reflects the earnings and revenue growth forecasts for the coming quarters and the 2024 and 2025 calendar years.

Earnings growth from the dominant large capitalisation companies within the Technology sector should continue to have a strong influence on the total earnings growth of the S&P 500 index in the near-term. The prospect of lower US interest rates to come, a soft landing for the US economy and growing company revenues and earnings should provide a tailwind to the US equity markets. The glow from those markets should rub off on other markets around the globe as global growth stabilises after three years of decline and as more central banks begin easing monetary policy. Our own equity market should benefit from a rate cut or two this year and some rebound in economic activity following the contraction reported for the first quarter. The South African economy performed poorly across almost all of the economic sectors at the start of the year but ongoing access to electricity, no general election angst, lower interest rates and some pickup in business and consumer confidence should support economic growth as the year rolls on. The economy may even gather some momentum as time passes and the GNU is seen to be making a real impact on the ground. We’ll only know how well our coalition politics works after we’ve seen the evidence but history might record that in 2024, South Africans helped themselves to a better general election outcome than the Americans.