Mid-year review: Five big trends from the stock market's 2024 first half
The first half of 2024 has ended and for market participants, it's been an action-packed six months.
Consumer spending was in slow gear. Energy costs were on the rise. Unemployment numbers started creeping up. And the looming question continued: when will the Fed cut rates? But as we embrace the long-awaited summer months, there's also good news from the first half of 2024.
Read on and get up to speed on the major trends impacting markets in H1, and learn how that may impact H2.
Five takeaways from 2024's first half
1. Interest rates: No U.S. cuts, but global ones have started
As we sit in the middle of 2024 the Fed continues to keep interest rates steady. After the June 11 - 12 Federal Open Market Committee meeting, rates stayed the same for a seventh consecutive meeting, as the Fed last raised rates came at its July 2023 meeting. The Fed, waiting for evidence of additional cooling for U.S. inflation, hinted there may only be one quarter percentage cut before year's end — a far cry from previous estimates ranging from three to seven cuts.
As we start the second half of the year, "Wall St." and some economists think the first rate cut could be September. Those odds look to have improved markedly after the release of the May CPI, which showed consumer prices rising at their lowest level in three years.
But not all central banks are waiting to make cuts.
June was a busy with the Eurpean Central Bank (ECB) cutting rates for the first time since 2019 with its quarter point cut in its benchmark deposit rate (from 4 percent to 3.75 percent). Bank of Canada became the first from the Group of 7's central banks to cut their rates while central banks in Sweden and Switzerland and Sweden recently cut rates. Up next for a rate cut may be the Bank of England, potentially in August, while Japan most likely won't undergo them in 2024.
2. Consumer spending remained strong but mixed
Consumer spending demonstrated a mixed, yet generally strong pattern, amid global economic uncertainties. Retail sectors saw a gradual increase in first quarter 2024 sales, primarily driven by the surge in e-commerce sales and digital transactions; total retail sales rose 2.8% in the first quarter of 2024 vs the first quarter of 2023.
Inflationary pressures and increasing interest rates posed challenges, particularly affecting the affordability of non-essential goods and services. Sectors including travel and leisure experienced peaks and troughs as consumers balanced spending with caution amid economic fluctuations. Discretionary spending on technology and home improvement continued strong growth owing to ongoing remote work trends and technological advancements.
While the first half of 2024 underwent some economic hurdles, consumer spending remained robust, supporting sectors that adapted effectively to the shifting economic landscape.
3. Geopolitical tensions impacted tech, energy markets, and commodities
Ongoing geopolitical events, including elections and wars, affect the stock market across sectors from the potential uncertainty that can spread to the global economy. In the first half, three tensions dominated the conversation.
Tech investors on alert: China's military exercises near Taiwan caused rising tensions between the two countries. With a reliance on Taiwan's chip manufacturing, companies like Advanced Micro Devices (NASDAQ:AMD), Nvidia (NASDAQ:NVDA), and Taiwan Semiconductor Manufacturing Company (NYSE:TSM) could undergo disruptions if tensions escalate. But the world's leading chipmakers can use a "kill switch" should a country invade and affect their technology expertise, including AI.
Energy markets disrupted: The Russia-Ukraine conflict hit its two-year mark in February, as the Ukraine received U.S. aid approval (April) and discussed a potential path to peace (June). The energy sector had been affected in the first half, particularly oil and natural gas prices and supplies. With Russia as the leading exporter of these commodities, the war has led to supply uncertainties, affecting global energy markets as well as disrupting Russia's metals and mining sectors from global sanctions.
Commodities prices rising, tech company slowdowns: The Israel - Gaza conflict continues, influencing global oil prices and energy markets. It has also significantly disrupted agricultural activities and supply chains in the region--also seen in the Russia-Ukraine conflict. As a tech hub, Israeli companies have undergone disruptions in daily activities, along with security concerns hindering business operations, affecting product development and technological advancements.
4. Volatility's mixed bag affected sectors differently
The S&P 500 had a busy first half, hitting continous record highs to end the first half up 15% year-to-date from strong corporate earnings reports. As for volatility, it didn't have the same narrative. April was a banner month as the VIX Index spiked above 20 for a short time, but it sat at 12.2 on June 28, 2024.
But volatility wasn't missing everywhere. Energy markets were turbulent as oil and gas prices experienced significant swings due to ongoing geopolitical tensions and disruptions in supply chains.
Central banks across the globe contributed to the uncertainty by adjusting monetary policies in efforts to control inflation while geopolitical events, notably in the Middle East and Eastern Europe. This added another layer of complexity to market dynamics as these conflicts heightened concerns about global stability and influenced investors' risk appetites.
And while the technology sector continued to drive innovation, it also faced volatility due to supply chain disruptions and evolving regulations. Despite strong demand for technological advancements, these challenges impacted stock performances and investor expectations.
As we enter the second half of the year, election season is starting and volatility is expected to rise. In July, the U.K. will hold an election and in November, the U.S. takes its turn. Historically the U.S has a volatility spike in October prior to the election, but after November's election day, volatlity has normally died down.
5. Enthusiasm for AI has increased use and drove earnings
Artificial intelligence (AI) was a hot theme in 2024's first half, helping to drive growth for chipmakers such as Nvidia and enabling several tech stocks to outpace the S&P 500 and the Nasdaq Composite indexes in the first half of the year. Here's a few AI highlights.
AI dominates earnings reports: According to Goldman Sachs, in the first quarter 2024, 41% of S&P 500 companies mentioned AI in their earnings reports vs the 23% the previous year. Besides tech companies, other sectors discussing AI included S&P 500's energy companies: 70% said they plan to use AI in its data centers and utility companies.
Everyone comes to the party: Big tech companies like Meta Platforms and Google parent Alphabet, along with legacy computer companies including Dell Technologies and Hewlett Packard, have also benefited from the enthusiasm for AI. Investors could view stock gains in the first half of the year as an indicator of the companies' positioning amid experts saying the AI boom is just getting started.
Utilities benefit: With AI's growth comes the increased demand for utilities. Utilities are traditionally considered safe haven investments because of their steady earnings, dividends, and lack of volatility. However, the frenzy to build large language models (LLMs) to power AI chatbots like ChatGPT or Google’s Gemini appears to have sparked a new bull market in utilities. AI requires data centers to function, which requires an enormous energy appetite.
What's next for the second half?
The first half ended with the S&P 500's 14.5% increase, an 18% rise in the Nasdaq composite and an almost 4% jump for the Dow Jones Industrial Average (DJIA). In June, the S&P 500 Index (SPX) hit a new monthly high and closed the month up.
As we enter the second half of the year, market participants will have a full slate of activities to watch; it starts with U.S. Presidential election season. On June 27, 2024, the first of two presidential debates took place. The market responded June 28, 2024's with a rise in U.S. stock futures and the dollar in early Asian trading. The second debate is scheduled for September 10, 2024 and before this are the conventions: Republican (July 15-18, 2024) and Democratic convention (Aug. 19 to Aug. 22, 2024).
During these time periods, market participants may be wondering what to expect. History suggests keeping an eye on the candidates' policies and the economy and after the election. Economic and inflation trends, not necessarily election outcomes, tend to have a more consistent relationship to market returns, according to U.S. Bank.
Earnings season returns in July. Will AI continue to be a dominant theme? Market watchers may also be watching unemployment figures, the impact from European elections, consumer spending, and other numbers affecting inflation figures as everyone impatiently awaits a rate cut. Will changes in these numbers finally get the Fed to act?
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If history is on the market's side, then marketwatchers may see continuing gains in the second half of the year as this happened 86% of the time during election years, according to Reuters. Earnings played a strong role in the markets and AI continued its ascent. Watching the market is an ongoing sport and here at moomoo, we're happy to help you with our many free tools and features.