Global equities rallied last week, driven by growing expectations of a rate cut by the Federal Reserve, even as manufacturing data showed signs of weakening.
The MSCI AC World Index, the global equity benchmark that tracks the performance of stocks across both developed and emerging markets, gained 1.7% during the week, according to Bank of America’s Monday report. Year-to-date, global equities are now up 14.4%.
Europe and Japan were the top-performing regions last week, with gains of 3.0% and 2.1%, respectively, while Emerging Markets trailed with a 0.6% increase.
On a global sector level, last week's best performers were sectors that had previously lagged, including Real Estate, which climbed 3.0%, and Materials, up 2.9%. Energy was the only global sector to record a negative return, slipping 0.1% as oil prices declined.
By style, Bank of America strategists said Risk outperformed, rising by 2.5%, and Small Size stocks also saw gains, up 1.8%.
“Global equity markets continue to respond well to the prospect of easier monetary policy in the US and Europe coupled with a healthy global earnings cycle,” strategists wrote.
In the U.S., all three major indices recorded a positive week. The Dow increased by nearly 1.3%, the Nasdaq by 1.4%, and the S&P 500 added 1.45%.
Stocks received a boost on Friday morning after Fed Chair Jerome Powell indicated potential interest rate cuts during his speech in Jackson Hole, Wyoming. However, Powell did not specify the timing or scale of any future rate reductions.
“The time has come for policy to adjust,” Powell said during the Fed’s annual retreat. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.”
Powell’s comments were welcomed by traders, who are in unanimous agreement on a rate cut at the September meeting, based on the CME Group’s FedWatch Tool. However, there is less agreement on the expected size of the rate reduction.