Quarter in Review: September 2024

23 October 2024

The September-24 quarter was marked by volatility but also remarkable strength – with the ASX posting the best September quarter since 2013. This was propelled by expectations of rates cuts and a soft landing in the US, and further helped by surprise China monetary and fiscal stimulus to close off September. These are the highlights of the September quarter.

  1. Global Markets: The ASX300 Accumulation Index rose 7.8% over the quarter, with gains shown across all three months. Offshore indices also proved strong, with the S&P500 up 5.9%. Interestingly performance is beginning to broaden outside the Magnificent Seven, as illustrated by the NASDAQ relatively underperforming only up 2.8% compared to the broader Russell 2000 markedly outperforming up 9.3%. Chinese equity markets rebounded strongly, with the Shanghai Composite Index gaining 21.4% following government and central bank stimulus measures. For context the index had been down 7.2% year to date and down 25.0% relative to its 5-yr peak since the announcements.
  2. Sector Performance: Sectors generally performed strong with 9 of 11 posting gains. The best performing sectors were IT (+15.3%) largely led by WiseTech, REITS (+14.3%) as rate cuts will improve transaction activity and signal the peak in cap rates and Materials (+11.7%) due to the China revitalisation closing the quarter. On the other hand, the worst performing sectors were Energy (-5.4%) hurt by broader economic growth and OPEC supply fears, Utilities (-0.6%), and Healthcare (+0.6%). Given their weight in the index, it is also worth noting the continued strong run in Banks, as Financials gained 8.7% over the quarter. We did observe a reversal of Banks strength as investors rotated into the Resources trade in the latter week of September – although year to date the Banks are still up 30%
    and the Miners down 20%.
  3. Rate and Yields: Bond yields fell sharply during the quarter with the US 10-Yr down 0.62% to 3.97% and the AUS 10-Yr down 0.34% to 3.97%. A dovish turn in rates expectations along with markets beginning to price in a soft landing was one of the primary factors behind the quarter’s strong gains. This followed US CPI continuing its disinflationary pathway, with the July number increasing 0.2% yoy or 2.9% on a 12 month basis – the slowest pace since March 2021. Further dovish messaging by the Federal Reserve at the Jackson Hole Symposium was finally followed by action in the form of a 50bps cut in September, marking the first rate reduction since 2020.
  4. Commodities: Commodity trends were mixed. Iron Ore prices halted their freefall trend since the beginning of the year, ending the quarter up 4.5% to USD$109/tonne. This was largely felt in the latter half of September, driven by the stimulus announcements from Chinese authorities. Brent Oil prices on the other hand fell sharply by ~17% to $72/bbl driving the underperformance of the Energy sector. This was largely a reaction to weaker than expected global demand coupled with fears of an increase in OPEC output possibly occurring in October.
  5. Reporting Season: The September quarter featured the FY24 reporting season. Results generally proved underwhelming with net EPS beats of +3% lower than previous result seasons. Outlook statements were also cautious, leading to consensus downgrades of 2.9% for FY25. Around 40% of stocks had guidance below consensus while only a minority 10% guided above. Downgrades were also most pronounced across Global Cyclicals which were a function of weaker growth momentum as well as FX headwinds from a higher AUD.
  6. Corporate News: While IPO markets remain modestly weak, the quarter was active in M&A and equity raising deals. Orora rejected a bid from US private equity player Lone Star worth $2.60 per share and flipped the switch by selling their OPS paper distribution and manufacturing business for A$1.8bn to US private equity Clayton, Dubilier & Rice. Private equity was also active locally, with Affinity Equity Partners bidding A$965m for Healius’s Lumus imaging business (~5x EBIT pre-AASB16). Fletcher Building sold its underperforming Tradelink business to US-based Blackfriars for $170m and raised NZ$700m to bring leverage back down to 1.2x. Auckland Airport undertook a A$1.3bn raise with proceeds to reduce debt and retain its Acredit rating ahead of its planned capex program. Finally, News Corporation backed REA Group’s bid for UK property portal Rightmove, upping its offer four times to a final bid worth A$12bn before ultimately being knocked back.