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Global equity indices to rise to new highs

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Global equity indices to rise to new highs

Global equities rose to a new high, boosted by increased confidence the Federal Reserve will soon cut interest rates as a consequence of moderating inflation and a more balanced job market.

Research Team
Research Team

The MSCI World All Countries index gained 1.34% in the week, pushing the gains since the beginning of the year to almost 14%. The expectations that US monetary will be eased, likely starting form September, were also supported by Chairman Powell remarks during his hearing before the Congress.

US CPI (Consumer Price Index) fell on the month and, importantly, core and services prices inflation fell more than expected in June. This corroborated Powell’s earlier comments about encouraging improvement on prices and an increased balance in the US job market which is expected to lead to a moderation in wages and underlying inflationary pressures.

The fall in US inflation was key to improved investors’ sentiment and also sparked a sharp rotation within the equity market to the benefit of small cap. The Russell 2000 index posted a 6% weekly gain, the strongest performance since last November. One caveat to the strong performance of smaller sized companies is that trading volumes were low, reflecting the summer vacation season and investors reduced activity ahead of the beginning of the second quarter earnings season.

On the latter front, the first signs were mixed, with earnings releases from US banks missing estimates and revising down the outlook. However, analysts expect earning for the S&P500 companies to accelerate to 9.3% YoY (year-on-year) in the second quarter from 5.9% in the first three months of the year.

A further element of support for global equities came from the fall in government bond yields. The 10-year Treasury bond yield fell below 4.2%, the lowest level since March, benefiting small caps and interest-rate sensitive sectors including real estate and utilities.

The value of your investment can fall as well as rise in value, and the income derived from it may fluctuate. You might get back less than you invest. Currency exchange rate fluctuations can also have a positive and negative affect on your investments. Please note that EFG Harris Allday does not provide tax advice. Past performance is not a reliable indicator of future performance. 

This document has been produced by the EFG Harris Allday research team utilising data from documents produced by EFG Asset Management (UK) Limited for use by the EFG group and the worldwide subsidiaries and affiliates within the EFG group. EFG Asset Management (UK) Limited is authorised and regulated by the UK Financial Conduct Authority, registered no. 7389746. Registered address: EFG Asset Management (UK) Limited, Park House, 116 Park Street, London W1K 6AP, United Kingdom, telephone +44 (0)20 7491 9111.