Executive Summary

Global financial markets advanced during July 2024, but the character of the rally changed significantly. The large US technology companies that had dominated returns during the first half of the year lost momentum, while smaller companies, financials, industrials, utilities and other interest-rate-sensitive sectors performed more strongly.

The rotation was driven principally by softer US inflation and growing confidence that the Federal Reserve could begin reducing interest rates in September. Government bond yields declined, improving the relative outlook for companies that had been constrained by high borrowing costs.

The S&P 500 produced a modest gain, while the Nasdaq Composite declined as semiconductor and artificial-intelligence shares experienced profit-taking. By contrast, the Russell 2000 rose sharply and delivered one of its strongest months in recent years.

The Federal Reserve maintained its target range at 5.25%–5.50% on 31 July. Policymakers stated that inflation had eased and acknowledged further progress towards the 2% objective. Chair Jerome Powell indicated that a September reduction could be considered if economic data continued to develop favourably.

European markets also advanced, although political uncertainty remained elevated. France's parliamentary election produced no overall majority, reducing the immediate likelihood of the most expansionary campaign proposals but creating the prospect of legislative gridlock.

The UK general election delivered a decisive Labour victory. Financial markets responded calmly because the incoming government had emphasised fiscal discipline, planning reform, infrastructure investment and institutional stability.

Japan delivered an important monetary-policy change at the end of the month. The Bank of Japan raised its short-term policy rate to approximately 0.25% and announced a gradual reduction in government-bond purchases. The decision supported the yen and contributed to the unwinding of leveraged carry trades.

Chinese markets remained weak as property-sector stress, subdued household demand and growing trade restrictions offset policy support. Commodity markets also softened, with oil and industrial metals declining amid concern about Chinese and global demand.

Digital assets experienced a significant institutional development when the first US spot Ether exchange-traded funds began trading. Bitcoin recovered modestly, although the sector remained volatile.

Key Themes During July

• Global equities advanced, but market leadership broadened away from mega-cap technology.
• US small-capitalisation shares substantially outperformed the S&P 500 and Nasdaq.
• The Federal Reserve moved closer to a possible September rate cut.
• The Bank of Japan raised rates and announced reduced bond purchases.
• Labour won a large majority in the UK general election.
• France's election resulted in a divided National Assembly.
• Semiconductor and AI-related shares experienced profit-taking.
• US spot Ether ETFs began trading.
• Oil, copper and other cyclical commodities weakened.

Global Economic Overview

The global economy remained broadly resilient during July, although signs of moderation became increasingly visible. Inflation continued to decline across several developed economies, allowing markets to anticipate a wider monetary-easing cycle during the second half of 2024.

United States

US economic activity continued to expand at a solid pace. Second-quarter GDP growth exceeded expectations, supported by consumer spending, business investment and inventory accumulation.

Inflation data was more encouraging. The consumer price index declined slightly on a monthly basis in June, while annual core inflation moderated. The personal consumption expenditures price index also indicated gradual progress towards the Federal Reserve's objective.

The labour market remained healthy but less overheated. Job creation moderated, unemployment moved higher and wage pressure eased. These developments supported the view that demand was becoming better balanced without an immediate recession.

The Federal Reserve held rates unchanged at its July meeting. Policymakers continued to describe inflation as somewhat elevated but acknowledged further progress. Markets interpreted the communication as laying the groundwork for a possible September reduction.

Eurozone

The eurozone economy expanded modestly during the second quarter, although performance remained uneven. Spain and several southern European economies remained comparatively strong, while Germany continued to struggle with weak manufacturing and subdued investment.

The European Central Bank maintained its deposit rate at 3.75% following its June reduction. President Christine Lagarde declined to commit to a September move, stating that future decisions would depend upon wages, services inflation and economic activity.

France

France's parliamentary election produced a fragmented National Assembly. A left-wing alliance won the largest number of seats, President Macron's centrist group placed second and the National Rally finished third, but no bloc secured an overall majority.

The result reduced the immediate probability of a single party implementing its full fiscal programme. However, it also created uncertainty regarding the budget, pension reform and the formation of a stable government.

United Kingdom

The Labour Party won a substantial parliamentary majority in the 4 July general election, bringing an end to 14 years of Conservative-led government. Sir Keir Starmer became prime minister.

Markets responded calmly because the new government had pledged to retain existing fiscal rules. Its economic priorities included housing construction, planning reform, clean-energy investment and closer economic cooperation with European partners.

UK inflation remained close to the Bank of England's target, although services prices and wages continued to run at elevated rates. Investors increasingly expected the Bank to begin easing in August.

Japan

The Bank of Japan raised its short-term policy rate from approximately 0%–0.1% to around 0.25%. It also announced that monthly government-bond purchases would be reduced gradually.

The decision reflected greater confidence in wage growth and inflation. It also responded indirectly to the weak yen, which had increased import costs and reduced household purchasing power.

China

China's economy remained uneven. Industrial production and exports provided support, while retail spending, housing demand and private-sector confidence remained weak.

The Third Plenum outlined longer-term reform priorities but did not produce the large immediate stimulus programme some investors had expected. The central bank reduced selected policy rates, although monetary easing alone was unlikely to resolve property-sector problems.

Trade friction intensified as the European Union prepared additional tariffs on Chinese electric vehicles and the United States maintained restrictions affecting strategic technology and clean-energy products.

Equity Markets

Global equities gained during July, but performance rotated sharply away from the technology companies that had led during the first half of the year. Falling bond yields encouraged investors to increase exposure to smaller companies, banks, property, utilities and cyclical sectors.

United States

The S&P 500 recorded a modest gain of approximately 1%, while the Nasdaq Composite declined. The Dow Jones Industrial Average advanced by more than 4%, reflecting stronger performance among financial, industrial and healthcare companies.

The Russell 2000 rose by approximately 10%, substantially outperforming large-cap indices. Smaller companies benefited from expectations of lower interest rates, improving refinancing conditions and a potential soft economic landing.

Technology shares weakened late in the month. Investors secured profits from semiconductor companies and questioned whether exceptional AI-related capital expenditure would translate into sufficiently rapid commercial returns.

Alphabet's results demonstrated strong cloud demand but also highlighted the scale of infrastructure spending. Microsoft and other platform companies faced similar scrutiny regarding data-centre and processor investment.

Europe

European equities advanced modestly. Banks, property companies and other interest-rate-sensitive sectors benefited from lower bond yields, while technology shares followed the US semiconductor correction.

French equities stabilised after the election reduced the immediate prospect of a National Rally majority. Nevertheless, uncertainty surrounding government formation and the budget limited enthusiasm.

United Kingdom

UK equities performed well following the general election. The FTSE 100 benefited from financials, healthcare and defensive companies, while the FTSE 250 gained from expectations of political stability and lower domestic interest rates.

Housebuilders attracted interest as the new government promised planning reform and increased housing construction. Banks also benefited from the improving domestic outlook.

Japan

Japanese equities experienced mixed performance. Banks benefited from the Bank of Japan's rate increase, while exporters faced pressure as the yen strengthened near the end of the month.

Semiconductor and technology companies declined alongside global peers. Corporate-governance reforms and increasing shareholder distributions nevertheless remained supportive long-term themes.

China and Hong Kong

Chinese equities declined as investors remained concerned about property, consumer demand and limited fiscal stimulus. Technology and electric-vehicle companies also faced uncertainty surrounding international tariffs.

Emerging Markets

Emerging markets produced mixed returns. Asian technology markets were affected by semiconductor weakness, while selected countries benefited from expectations of lower US rates and improved capital flows.

Indicative July Performance

Fixed Income Markets

Government bonds generally advanced during July as inflation moderated and markets increased expectations of policy easing. Credit markets remained supported by resilient economic activity and low near-term default expectations.

US Treasuries

US Treasury yields declined, particularly among shorter maturities sensitive to Federal Reserve policy. Investors increasingly priced a September rate reduction and additional easing before year-end.

The 10-year yield moved towards 4%, while the two-year yield declined more significantly as the expected policy path changed.

European Government Bonds

German Bunds advanced as inflation moderated and economic data remained subdued. French spreads narrowed from their June peak after the election prevented any single political bloc from securing control.

Political uncertainty remained, however, and France continued to face pressure to address its budget deficit.

UK Gilts

UK government bonds strengthened as investors anticipated a possible August Bank of England reduction. The election result reduced near-term concern about abrupt fiscal-policy changes.

Japanese Government Bonds

Japanese yields moved higher after the Bank of Japan raised rates and announced plans to reduce bond purchases. The change represented another gradual step away from exceptionally accommodative monetary policy.

Corporate Credit

Investment-grade and high-yield bonds remained supported by strong demand. Spreads stayed tight, indicating limited concern about a broad default cycle.

The low level of spreads reduced the compensation available for deterioration in credit quality. Investors continued to favour companies with moderate leverage and limited refinancing needs.

Private Credit

Private-credit activity remained strong, although competition from banks and syndicated markets increased. Stronger borrowers obtained lower margins and more flexible terms.

Existing highly leveraged borrowers continued to face elevated floating-rate interest expense. Lower policy rates could provide eventual relief, but the pace and scale of easing remained uncertain.

Foreign Exchange

Currency markets reflected changing interest-rate expectations and the Bank of Japan's policy shift. The US dollar weakened against several major currencies as markets moved closer to anticipating Federal Reserve easing.

US Dollar

The dollar softened as inflation moderated and Treasury yields declined. Expectations of a September reduction reduced the interest-rate advantage that had supported the currency during the first half of the year.

Euro

The euro remained relatively stable. Political uncertainty in France created pressure, while improving expectations for US easing reduced the dollar's relative advantage.

Sterling

Sterling strengthened modestly following the orderly UK election and signs of economic improvement. Markets continued to anticipate gradual Bank of England easing rather than an aggressive series of cuts.

Japanese Yen

The yen appreciated sharply during the second half of July. Suspected earlier intervention, falling US yields and the Bank of Japan's rate increase encouraged investors to reduce carry trades funded in the Japanese currency.

Chinese Renminbi

The renminbi remained under pressure from weak domestic demand and monetary easing. Authorities continued to discourage disorderly depreciation.

Commodities

Commodity markets generally weakened during July as concern about Chinese demand outweighed lower US interest-rate expectations.

Oil and Energy

Crude-oil prices declined despite continued geopolitical tension. Concern about Chinese demand, resilient non-OPEC production and the possibility of additional OPEC+ supply weighed on the market.

Red Sea disruption and conflict in the Middle East continued to create a risk premium, but had not produced a sustained shortage of physical supply.

Gold

Gold advanced and approached record levels as Treasury yields declined and investors anticipated Federal Reserve easing. Central-bank purchases and geopolitical uncertainty remained supportive.

Copper and Industrial Metals

Copper declined as Chinese manufacturing and property demand remained subdued. Prices had retreated substantially from the speculative highs reached during May.

The longer-term outlook remained supported by electricity networks, renewable energy, electric vehicles and data centres, but immediate demand was less robust.

Agricultural Commodities

Agricultural markets produced mixed returns as weather forecasts and supply conditions varied. Cocoa remained historically expensive, while several grain markets weakened on expectations of adequate harvests.

Digital Assets

Digital assets advanced modestly during July, supported by improving liquidity expectations and the launch of regulated US investment products holding Ether directly.

Bitcoin

Bitcoin recovered after weakness earlier in the summer. The asset benefited from renewed ETF inflows and expectations of lower US interest rates.

Potential selling connected with government holdings and creditor distributions continued to create volatility.

Spot Ether ETFs

The first US spot Ether exchange-traded funds began trading on 23 July. The products expanded regulated institutional access beyond Bitcoin.

Initial inflows into newly launched funds were partly offset by withdrawals from an existing converted trust. The products did not include staking rewards, limiting their income relative to direct Ether ownership.

Regulatory Environment

Digital-asset regulation remained fragmented. European businesses continued adapting to the Markets in Crypto-Assets framework, while US policy remained divided between regulatory enforcement and proposed legislation.

Risk Considerations

• ETF approval did not remove price or liquidity risk.
• Government and creditor distributions could increase market supply.
• Regulatory treatment of staking and alternative tokens remained uncertain.
• Digital assets remained highly sensitive to monetary conditions.

Private Equity

Private-equity conditions improved gradually during July as lower bond yields and stronger expectations of monetary easing supported financing markets.

Deal Activity

Mid-market activity remained more resilient than large leveraged buyouts. Software, healthcare, business services, infrastructure and specialist industrial companies continued to attract interest.

Corporate carve-outs and public-to-private transactions offered opportunities where listed valuations remained below comparable private-market levels.

Financing

Banks, high-yield markets and private lenders competed for stronger borrowers. This allowed some portfolio companies to refinance debt at lower spreads or extend maturities.

Total borrowing costs nevertheless remained high. Sponsors continued to use more equity and lower leverage than during the pre-2022 period.

Exits

Exit activity remained the industry's principal challenge. Stronger public markets supported selected IPOs, but investors remained demanding regarding profitability and valuation.

Trade sales, secondary buyouts, continuation funds and partial disposals remained important alternatives.

Fundraising and Secondaries

Fundraising continued to favour established managers and specialist strategies. Private credit, infrastructure and secondaries attracted substantial institutional interest.

Secondary-market buyers benefited from opportunities to acquire mature portfolios at discounts to reported net asset value.

CE Global Private Equity Observations

• Lower yields improved sentiment but did not restore inexpensive leverage.
• Mid-market opportunities remained comparatively accessible.
• Operational value creation remained more dependable than multiple expansion.
• Exit activity and distributions remained essential to fundraising recovery.
• Secondaries continued to provide useful liquidity and portfolio rebalancing.

Artificial Intelligence & Technology

Artificial intelligence remained a major long-term investment theme, but July introduced greater scrutiny of valuations and capital expenditure.

Semiconductors

Semiconductor shares weakened as investors secured profits and reacted to the prospect of tighter US export controls. Demand for advanced processors remained strong, but expectations had become exceptionally demanding.

Cloud Capital Expenditure

Microsoft, Alphabet, Amazon and Meta continued investing heavily in data centres and AI infrastructure. Investors increasingly required evidence that revenue growth would justify this expenditure.

Enterprise Adoption

Businesses expanded the use of generative AI within software development, customer service, marketing and document analysis. Security, accuracy and integration remained obstacles to large-scale deployment.

Electricity and Infrastructure

Data-centre development continued to create demand for power generation, grid connections, cooling and electrical equipment. Infrastructure constraints remained one of the most important limits on AI expansion.

Technology Risks

• High valuations increased sensitivity to earnings disappointments.
• Capital spending could grow faster than AI-related revenue.
• Export controls could disrupt semiconductor sales and supply chains.
• Enterprise adoption could proceed more slowly than anticipated.
• Copyright, privacy and competition risks remained unresolved.

Sector Spotlight

Small and Mid-Capitalisation Companies

July's sector spotlight examines small and mid-capitalisation companies following the sharp rotation towards the Russell 2000 and other previously underperforming segments.

Interest-Rate Sensitivity

Smaller companies generally rely more heavily upon bank lending and floating-rate debt. Expectations of Federal Reserve easing therefore improved their financing outlook more significantly than that of cash-rich mega-cap businesses.

Valuation Opportunity

Small-cap shares traded at a substantial valuation discount to the largest US companies. The gap created potential opportunity where businesses possessed strong balance sheets, pricing power and sustainable earnings.

Domestic Economic Exposure

Smaller companies typically generate a greater proportion of revenue within their domestic markets. They could benefit from resilient US demand, infrastructure investment and reshoring.

Principal Risks

A large proportion of the small-cap universe remained unprofitable or highly leveraged. These companies were vulnerable if rate cuts were delayed or economic activity weakened abruptly.

Private-Market Opportunities

Lower public valuations could support take-private transactions, consolidation and growth-capital investment. Specialist investors could also identify businesses overlooked by large public-market funds.

Investment Perspective

The July rally demonstrated the potential for broader market participation. However, sustainable outperformance required genuine earnings improvement rather than rate-cut expectations alone.

Regulatory Update

Regulatory developments during July focused on artificial intelligence, digital assets, technology competition and international trade.

European Artificial Intelligence Regulation

The EU Artificial Intelligence Act was published in the Official Journal during July ahead of its entry into force in August. Businesses began assessing which systems would be prohibited, high risk or subject to transparency requirements.

Digital Assets

The launch of spot Ether ETFs increased attention on custody, disclosure and the regulatory treatment of staking. European firms continued implementing MiCA requirements.

Semiconductor Export Controls

US authorities considered additional restrictions affecting advanced semiconductor equipment and exports to China. These measures created uncertainty for global manufacturers and suppliers.

Technology Competition

Competition authorities continued investigating digital platforms, cloud providers and partnerships between major technology companies and AI developers.

Private Markets

Private-fund managers continued to face scrutiny concerning valuations, fees, preferential terms and continuation-vehicle conflicts.

Compliance Priorities

• Map the organisation's use of artificial intelligence.
• Prepare for EU AI Act risk classifications and documentation.
• Review digital-asset custody and disclosure arrangements.
• Assess semiconductor and technology supply-chain restrictions.
• Maintain consistent private-asset valuation procedures.
• Disclose conflicts in continuation and related-party transactions.

Looking Ahead

Markets entered August expecting the Federal Reserve to begin reducing rates in September. Investors also faced increased sensitivity to employment data, technology earnings and the rapid appreciation of the yen.

Federal Reserve

Inflation and labour-market reports would determine whether the Federal Reserve could proceed with a September cut. A gradual slowdown would support the soft-landing outlook, while sharp employment weakness could revive recession concerns.

Bank of England

The Bank of England's August meeting would determine whether the UK joined the global easing cycle. Services inflation and wage growth remained the principal areas of concern.

Bank of Japan

Investors would assess the impact of higher Japanese rates and reduced bond purchases. Further yen appreciation could force additional unwinding of global carry trades.

Corporate Earnings

Technology earnings would remain important, particularly guidance concerning AI capital expenditure. Markets would require evidence that infrastructure spending was generating commercially sustainable returns.

Market Breadth

The durability of the small-cap rally would be closely watched. Broader participation could strengthen the equity outlook, while a reversal would demonstrate continued dependence upon mega-cap companies.

Geopolitics

Conflict in the Middle East and Ukraine continued to threaten energy supplies and market confidence. Political developments ahead of the US presidential election would also become increasingly influential.

Private Markets

Lower yields could improve transaction activity and refinancing conditions. However, sponsors would continue to require disciplined valuations, moderate leverage and multiple exit options.

CE Global Private Equity Perspective

July demonstrated how quickly market leadership could change when monetary expectations shifted. The rotation towards smaller companies and interest-rate-sensitive sectors improved diversification but did not eliminate economic or credit risk.

Artificial intelligence remained a compelling structural theme, although investors became more selective regarding valuations and the returns generated by capital expenditure.

Within private markets, an easing cycle could support transactions, but lower policy rates would not recreate the exceptionally inexpensive financing environment of the previous decade. Reliable cash flow and operational improvement remained essential.

CE Global Private Equity believes that attractive opportunities remain across specialist technology, healthcare, infrastructure, business services and selected smaller companies. Entry-price discipline and conservative financing remain central to long-term risk management.

This market review is provided for general information and discussion purposes only. It does not constitute investment, legal, tax or other professional advice, nor an offer or solicitation to purchase or sell any security, financial instrument or investment product. Market values can rise or fall, and past performance is not a reliable indicator of future results.