Global Equities Post Solid Gains in Q2, Led by Large-Cap and Tech Stocks
The second quarter of 2024 saw a significant upswing in global equities, with large-cap and technology stocks leading the charge. The S&P 500 Index and Nasdaq Composite Index rose 4.28% and 8.47%, respectively, driven by improving inflation data. Nvidia briefly surpassed Microsoft and Apple as the world’s most valuable company in mid-June before experiencing a sell-off towards the end of the quarter.
However, not all segments of the market shared in the gains. Small-to-mid-cap stocks, as measured by the Russell 2000 Index, declined 3.28%, while equities underlying the ICE BofA Global 300 Convertible Index fell 2.23%. Elevated borrowing costs took a toll on smaller companies, widening the gap between large-cap and small-cap performance.
Equity volatility, as measured by the VIX, remained subdued throughout the quarter, averaging around 14. US Treasury rates moved moderately higher across the curve, with the 2-year yield increasing from 4.62% to 4.75%. Interest rate volatility, as measured by the ICE BofA MOVE Index, increased from the first quarter to the second quarter, but was notably higher in April.
High-yield credit spreads were little changed across the quarter, ranging from +335 bps to +346 bps. Despite a difficult April, the ICE BofA US High Yield Index returned +1.09% for the quarter. Convertible valuations improved across the quarter, with gains most pronounced in risk-return sets trading between $120 and $140.
Global new issuance of convertibles reached $34 billion in the second quarter, a 77% increase from the same period last year. The US accounted for 55% of total issuance, with notable deals including Alibaba Group Holding’s $5 billion bond and JD.com’s $2 billion bond.
Contributing to returns for the quarter was the Maxeon Solar Technologies complex, which benefited from a recapitalization of the company’s balance sheet. The Coherus BioSciences 1.5% convertible also gained after the company announced an asset sale. On the other hand, the Liberty Interactive 3.75% and 4% bonds, as well as the Gol Linhas Aereas Inteligentes complex, detracted from returns during the quarter.
Looking ahead, global convertible new issuance and special situations activity are expected to remain elevated in the second half of the year. While special situation activity may slow in the coming weeks due to the second quarter earnings season, conversations with issuers continue to suggest a strong opportunity set in the second half. Channel checks indicate that new issuance levels are likely to stay high in the coming months, with equity prices at all-time highs and single-stock volatility expected to increase during the upcoming earnings season.
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