​Equity markets have performed very well this year despite the challenging macroeconomic and geopolitical environment. With the exception of a brief correction in April, equities have shown a strong upward trend. This strong positive performance has been particularly pronounced in the US, where the major indices are breaking records on an almost daily basis. The S&P 500 has surpassed the 5,500 mark and is up 15.6% so far in 2024. The Nasdaq Composite is close to the 18,000 mark and is already up 21%, while the Dow Jones Industrial Average has crossed the important 40,000 mark but is only up 3.8% in 2024. Last year's trend also continued with the stellar performance of the Magnificent 7, which have been key contributors to the positive performance of the broader market and other technology stocks, as demand for AI shows no sign of slowing. Figure 1 compares the performance of the Magnificent 7 with the major US indices. Since June 2023, the Magnificent 7 have gained almost 60% compared to 35% for the Nasdaq, 30% for the S&P 500 and 20% for the DJIA.

The macroeconomic situation in the US and Europe is evolving differently. The US has reacted more quickly to inflation, which has led to a faster decline in inflation than in Europe. Inflation in the US already reached 4% in May 2023, when it was still 8% in the EU and over 10% in the UK. Since then, US inflation has remained stable and has not fallen further. Inflation in the EU fell below 4% in October 2023. In contrast to the US, inflation in the EU continues to fall, slowly approaching 2% as of April 2024. In the UK, the development is even faster, with inflation falling well below 4% in February 2024 and the lowest of the three in April 2024.
These developments have led to very different outlooks for the expected rate cuts. At the beginning of the year, the Fed was expected to be the first to cut, with around 5-6 rate cuts estimated. With sticky inflation, markets are now pricing in 0-1 rate cuts for the remainder of 2024. The European Central Bank followed Switzerland's lead and cut rates by 25bps to 4.25% at its June meeting. How this process will continue remains relatively unknown. While further cuts are certainly expected in 2024, the number of cuts remains largely uncertain. The ECB is expected to review the June cut at its next meeting in order to provide more insight into where it is headed. The UK is also making positive headlines with inflation moving towards 2%, which has been rare in recent years with Brexit issues and the recent re-election. The Bank of England is widely expected to start cutting interest rates at its upcoming meeting. Figure 1 provides more details on the development of inflation and interest rates in recent years.