Markets In Focus: May 2024 Market Snapshot

In May 2024, global market discussions centred on speculation regarding interest rate cuts, and excitement around developments in artificial intelligence (AI). In South Africa, investors adopted cautious positions as all attention was focused on the National Election on 29 May 2024.

Signs of easing core inflation in the US have raised expectations that the first interest rate cut from the US Federal Reserve could be in September 2024. Meanwhile, the European Central Bank acknowledged signs of declining inflation in Europe and flagged its first interest rate cut at its June meeting. Back in South Africa, the Reserve Bank’s Monetary Policy Committee held the repo rate unchanged at 8.25% at its end-May meeting. This decision was attributed to persistent inflation expectations, despite better-than-expected Consumer Price Index figures for March and April.

US investors continued to chase technology shares, pushing the S&P 500 and the Nasdaq to new peaks. Around half of the S&P 500’s 4.8% monthly gain came from just four shares: NVIDIA, Apple, Microsoft, and Alphabet. The share price of NVIDIA, the company which makes high-tech chips, systems and software for AI, has risen by 121% in the first five months of this year. Outside the technology sector, corporate earnings delivered positive surprises, with S&P 500 earnings up 6%.

The Chinese government announced new measures to stimulate the economy and support the property sector, but these will take effect over time. Meanwhile, the latest manufacturing data showed an unexpected slowdown in activity, as weakness in property prices is dampening domestic demand.

In South Africa, dollar weakness early in the month lifted the rand to a recent best level of R18.05/$ and resulted in stronger prices of selected commodities, including gold, platinum, and coal, with a knock-on effect on share prices. The hopeful mood at the start of the month became a more apprehensive one as the results of the National Election on 29 May 2024 emerged over the following days, showing the African National Congress with a greatly diminished level of support and raising fears of an unstable governing coalition. By the end of May, the South African 10-year bond yield was back to 10.9% and the rand had weakened to its early May level of around R18.80/$.

Looking through short-term volatility, on a five-year view South African investors would have made their best returns from international diversification, partly (but not entirely) due to rand weakness. The MSCI World Net Index in rands delivered 18.71% over that period, while the rand depreciated by 5.28% against the dollar. The second-best investment was local equities, with the JSE All-Share Index registering a five-year appreciation of 10.71%. The All-Bond Index returned 7.21%, slightly ahead of cash, at 6.04%.

Table 1: Total returns to 31 May 2024