Commentary
Last week saw sizeable declines across global equity markets. Losses were observed in both developed and emerging markets and in all size and style categories. In the US, smaller stocks underperformed as Russell 2000 (a US small-cap benchmark) lost near 7% of value throughout the week. In terms of sectors, Utilities was the best performer, while Technology lost the most ground.
Investor pessimism was primarily explained by a weaker than expected macroeconomic data releases in the US. While job growth slowed remarkably in July, unemployment rate unexpectedly ticked up to 4.3%. Moreover, manufacturing PMI declined further into the contraction territory, while analysts were expecting a slight improvement in the figure.
In light of the weak economic activity, markets expect more rate cuts from the Fed. Not so long ago, markets were pricing in only one or two 25bps cuts from the Fed in 2024. Currently, five cuts are expected. As a result, fixed income yields have fallen considerably in past month, with 2- and 10-year treasury yields losing 88bps and 47bps, respectively. Decline in yields is observed in corporate bond markets as well, with high-quality bonds now yielding 38bps less than a month ago.
