Monthly Market Review August 2024
Markets in August continued their upward trend of the past months despite experiencing volatility driven by concerns on US economy after weak unemployment data. However, Markets recovered their earlier losses as inflation continued to trend lower and US policy rate cuts become more likely. On that note, the MSCI Islamic recorded a MoM gain of 1.0% and YTD gain of 6.2% respectively. The Dow Jones Sukuk Index recorded a MoM return of 1.7% and YTD return of around 4.0%, whereas the yields on US treasury lowered throughout all the major maturities.
The dust has settled after the latest Jackson Hole meeting with all the major markets except Japan pricing significant interest rate cuts till the end of the year. The month started with Bank of Japan ending the streak of free cash by hiking the interest rate to 25 bps, resulting in unwinding of carry trades. This along with weak US macros resulted in markets pricing in a recession, pushing the volatility index (VIX) to its highest point since Covid. However, later in the month, signs of monetary easing led markets to shift upward.
In the US, there are increasing signs that the Federal Reserve (Fed) is likely to cut interest rates in September 2024. Recent employment data showed that job growth has been weak, which supports calls for rate cuts. The S&P 500 index recorded a monthly gain of 2.4%, whereas the tech heavy Nasdaq recorded a lower gain of 0.7%. Signs of cooling of the domestic economy were evident in the PMI which fell below 50 for the first time since December 2023. The Dollar weakened against global currencies driven by growing expectations of rate cuts and expected weakness in the US economy.
In UK, contrary to the global macro-economic scenario, the economy is showing signs of resilience, with a slight uptick in the CPI to 2.2% vs 2.0% for the past two months. Furthermore, unemployment fell to 4.2%, lower than forecast of 4.5%. Despite these positive macros, the markets are still pricing in two rate cuts till the end of the year. The Eurozone is also showing signs of slowing down where the PMI index was consistently below 50. The ECB is also expected to cut rates in line with other central banks.
China continues to show weak economic numbers with manufacturing activity falling to a six-month low in August. This along with a rise in unemployment to 5.2% raises concerns about growth prospects of the world’s second largest economy. As a result, policymakers are expected to continue to provide stimulus to households.
Looking ahead, markets are expected to remain responsive to changes in central bank policies and geopolitical developments, emphasizing the importance of maintaining a diversified investment portfolio and being prepared for any potential market disruptions.
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As with any investment, a Wahed Invest Ltd investment puts your money at risk, as the value of your investment can go down as well as up. The tax treatment of your investment will depend on your individual circumstances and may change in the future. If you are unsure about whether investing is right for you, please seek expert financial advice.
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