Performance 2024
First quarter 2024
The first quarter results of the year 2024 show another increase, with a return of 5.97% for Class A for the quarter.
This first quarter has been marked by the status quo of Western central banks regarding the long-awaited interest rate cut by financial operators for the month of March.
American stock indices are reaching new highs, notably due to a robust labor market. Despite higher-than-expected inflation in January and February, the Federal Reserve (American Central Bank) has reaffirmed its intention to cut rates this year. It is noteworthy that operators anticipate a 0.75% cut; currently (as of April 4, 2024), the market anticipates a 25 basis point cut for June 12, 2024. Inflation is also a major issue during this election period in the United States. Americans will vote on November 5, 2024, to decide who will lead the country for the next 4 years between Donald Trump and Joe Biden. Currently, inflation is at the heart of criticisms against Joe Biden, despite the economic reforms implemented since 2021, which seem to be yielding results.
Regarding the eurozone, indices are also showing new records, although the labor market seems to be bearing the cost. Inflation is on track to return close to its target of 2% in the first quarter of the year, thus encouraging a rate cut by the European Central Bank (ECB) in June. However, the ECB has never followed the Fed’s lead in terms of rate cuts. This would therefore be a first for the eurozone. A rate cut would automatically lead to a decrease in the euro against other currencies, notably the dollar. Since the 2022 energy crisis, Europe has heavily relied on the United States and Qatar to import liquefied natural gas, which is traded in dollars. Consequently, a decrease in the euro could lead to imported inflation for Europe in the energy sector, the repercussions of which we have seen since 2022 (increased electricity prices for individuals and businesses, decreased production).
On the other hand, China reassures the markets with a rebound in its manufacturing activity and exports in the first quarter. Despite these encouraging signs for the world’s second-largest economy, the ambitious goal of 5% growth in 2024 seems hardly achievable without increased support for the Chinese economy. The Chinese real estate sector remains heavily affected with new signs of distress from some major developers: drastic profit declines, postponement of results publication. Although monetary policy has been eased and the Chinese central bank has already announced new accommodative measures, recent economic data showing a recovery do not seem to advocate for further intervention by the Chinese central bank.
Second quarter 2024
The second quarter results for 2024 show further progress, with a 15.83% return for Class A for the quarter.
The United States continues to attract foreign capital, as evidenced by the new valuation records on American stock exchanges. The job market remains robust, although there is a slowdown in the creation of new jobs compared to previous quarters. There is no cause for alarm, but job growth has decelerated in the second quarter. Consequently, the unemployment rate has slightly increased, reaching 4%, compared to just under 3.4% at the same time last year. On the inflation front, there is good news with a deceleration following an acceleration phase in the first quarter of the year. However, measured inflation remains distant from the 2% target set by the Federal Reserve. In its fight against inflation, the Fed has not lowered its rates since the last increase in July 2023. It has, however, announced that only one rate cut would be considered for 2024, contrary to the six cuts initially anticipated by the markets.
On the political front, Joe Biden’s disastrous debate performance casts doubt on his ability to secure another victory for the Democrats, with speculation about potential replacements such as Kamala Harris, Michelle Obama, or the governor of California. Under such circumstances, Donald Trump appears well-positioned to win the November 5, 2024, elections.
Nvidia, a leader in AI technology, saw its shares soar by 37% in the second quarter and 149% this year, surpassing the average performance of S&P 500 stocks. Along with the other members of the “Magnificent Seven” (Microsoft, Apple, Amazon, Meta, Alphabet, Tesla), Nvidia accounts for 60% of the total index return this year. Tech stocks are highly valued for their rapid earnings growth. Ten years ago, the ten largest American companies represented 14% of the S&P 500 index. Today, they represent more than a third, mainly due to the rise of tech stocks. In 2023, these seven giants contributed to more than half of the S&P 500’s gains. However, a decline in one of these stocks could lead to significant losses for investors, as evidenced by Nvidia’s loss of over $500 billion in market value after a massive sell-off in June. This concentration is not unprecedented. Similar levels were observed in the 1930s and 1960s. Unlike the companies from the 1990-2000 dot-com bubble, today’s leaders boast higher profit margins and returns on equity.
The Eurozone experienced its first rate cut on June 6, leading to a slight depreciation of the euro against the dollar. To date, no further rate cuts are planned. Inflation remains below the 2% target, with forecasts suggesting a return to 2.2% by the end of 2025. Economically, growth stabilized during the second quarter. Despite this stabilization, the unemployment rate continues to fall in the Eurozone, highlighting a certain resilience in the labor market.
China is intensifying its support policies for the industrial sector to boost its external market, in response to weak domestic demand since the beginning of the year. The stimulus measures have particularly benefited the export sector, allowing industrial production to nearly return to pre-Covid-19 levels. The export of electric vehicles and renewable energy, although threatened by European sanctions, plays a crucial role in this recovery. Domestically, the housing crisis persists with declining sales and property prices. Measures taken in May, including the easing of credit conditions, have yet to show a notable effect. Facing EU sanctions and the trade war with the United States, China is considering further monetary policy easing to revive domestic consumption, despite pressures from capital outflows to more attractive markets like the United States.
Third quarter 2024
The results for the third quarter of 2024 show a significant decline, with a loss of 26.26% for Class A over the quarter.
Global markets underwent a significant correction in early August. This correction was triggered by a disappointing U.S. employment report, which fueled fears of a recession. It was exacerbated by the unexpected change in monetary policy by the Bank of Japan, which raised its key interest rate for the first time in seventeen years. This decision led to a massive unwinding of yen carry trade strategies, where investors borrow in yen to buy dollars and invest them in the U.S. technology stock market. Our strategies were particularly impacted by these market movements over the summer.
The underperformance this quarter is primarily due to the volatility of the U.S. technology index (Nasdaq). Our statistical models, having concentrated a significant portion of our strategies on this index, were heavily affected by the sharp correction observed this summer on a limited number of Nasdaq stocks, which wiped out the gains accumulated during the first two quarters.
In response to this correction, we reduced our exposure, which, although protective, did not allow us to fully capture the subsequent rebound. In order to prevent such effects in the future, we are currently developing new models that incorporate a larger number of parameters to increase our diversification and better absorb such market shocks.
Regarding economic news, recent data shows resilience in the U.S. labor market. The latest reports allowed the Federal Reserve (Fed) to initiate its first interest rate cut of 0.5% on September 18, bringing the target range to 4.75% – 5.00% after more than a year of stability. The Fed remains confident in its ability to control inflation, which moderated to 2.5% year-on-year in August. However, the September employment report, which was stronger than expected, has shifted market expectations regarding future rate cuts. The unemployment rate, which had risen to 4.2% during the summer, has now fallen back to 4.1%, reducing the likelihood of a significant rate reduction at the November meeting. A 25-basis-point cut is still anticipated by the market. Fed Chair Jerome Powell has reiterated that future monetary decisions will depend on upcoming economic data, particularly on employment and inflation.
In the U.S., attention remains focused on the approaching presidential elections on November 5, a key factor for market developments in the coming months. Beyond the elected candidate, uncertainties persist regarding the composition of the legislative chambers, which is crucial for the implementation of the winning candidate’s policy.
In Europe, inflation continues to decelerate, reaching 1.8% year-on-year in September, below the European Central Bank (ECB)’s 2% target. However, this decline is mainly due to the drop in energy prices (-6% year-on-year), while core inflation (excluding energy) remains elevated at 2.7%, with service inflation reaching 4%. The ECB made another rate cut in September and maintains a data-dependent approach. However, attention must be paid to the conflict in the Middle East, which could quickly push up energy prices in Europe.
Finally, China is intensifying its efforts to achieve its 5% growth target for 2024. The authorities have announced a series of measures, including monetary stimulus with a cut in its key interest rate and support measures for the real estate sector, such as lowering mortgage rates for existing loans. The reduction in the reserve requirement ratio for banks is also aimed at stimulating credit supply. These announcements have supported Chinese equity markets, but uncertainties remain, as a similar rebound in May was followed by weak domestic demand despite the stimulus plan initiated by Chinese authorities.
