Market insights July to September 2024
ESSSuper, Daniel Selioutine - 23 Jan 2025
In our first edition of Exploring Super for 2025, Daniel Selioutine (Group Executive, Investments) provides economic and market commentary for the July to September 2024 period.
Key movements in investment markets for the first quarter of 2024-25
In the September quarter, equity markets continued to perform well, following a strong overall performance in the 2023-24 financial year. Australian equities, which had lagged behind global markets the previous year, started this financial year on a positive note and outperformed during the quarter.
On the 18th of September the US Federal Reserve announced a 0.5 % interest rate cut; its first interest rate cut in four years. That led to a drop in bond yields, which is to say that bond prices increased over the September quarter. Much of that price action actually reversed in October, and we're seeing a lot of effects as the market really adjusts its expectations for what is a commonly referred to as a soft landing in the US economy.
Stronger than expected US jobs reports helped ease some of those potential recession concerns, but inflation remains a key challenge in several countries. In the US, inflation recently dropped below 3%; however, it is still elevated, and it's been at this level since about June 2023.
In Australia, inflation fell slightly below the Reserve Bank of Australia’s (RBA’s) 2% to 3% target band — it hasn't been at this level since about March 2021. That being said, the RBA has cautioned the market that some of this drop may be temporary, and that the RBA is actually expecting inflation to go up before it goes back down.
Overall, the economic environment remains uncertain for some risk assets. Notwithstanding US equity, equity markets in particular are performing exceptionally strongly and they now appear to be rather expensive on many valuation measures.
Effects of the US election and other geopolitical events on investment markets
So far, the US equity market has generally reacted positively to Trump's electoral victory. In his first term, President Trump implemented corporate tax cuts, which led to a rally in equity markets at the time. However, it is it is worth noting that the market rallied at that point in time for much lower valuations compared to where we are today. In addition, investors may not be able to predict Trump's future policy intentions with any real accuracy — so our approach at ESSSuper is about ensuring that we're not over-exposed to any one thematic, and we try not to deviate too far from benchmark when there isn't a strong economic rationale for doing so.
ESSSuper investment performance
Investment performance against the inflation consumer price index (CPI) target objectives was positive over the year to September 2024; each of our options outperformed its CPI goal. However, when compared to peers, our performance was below the median for six out of nine options over that same time period. This is because we've intentionally reduced risk across most of our options as equity market valuations have become increasingly stretched. Over the past year, there's been a rally in US technology stocks, which helped the options that were more heavily invested in passive equities. For example, our Balanced Growth Option, which is a lower-cost and more volatile offering, outperformed the median SuperRatings balanced fund — because it's entirely invested in passive equities.
Most of our active equity managers didn't chase the market rally, which meant that the professional fund managers who are selecting stocks for the Accumulation Plan are cautious about pursuing the passive benchmark into extended valuations — we believe there is something worth noting in that. Looking at our three-year numbers to September 2024, we're still in a strong position compared to peer funds. Seven of nine of our options have delivered returns in the top 25% of their respective SuperRatings peers over that period to September — so that's top quartile performance.