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Monday 07 October 2024
Global Investment Views, Equity, Fixed income
October 2024 | Capital markets whipsawed between a weakening US labor market and hopes that the Fed would successfully steer the economy towards a soft landing. Markets are optimistically interpreting the latest policy action, which could potentially boost consumption and investment. We now believe the Fed will ease policy by another 50 bps this year (75 bps previously expected), split equally between its two remaining meetings.
01 | In an environment of no recession and central banks in an easing mode, we remain slightly positive on risk assets.
02 | The US seems less concerned (for now) about fiscal deficits. The political leanings of Kamala Harris and Donald Trump are different, but neither of them seems to be bothered by high deficits.
03 | A US Federal Reserve that is inclined to cut rates deeper would give more leeway to the ECB and the Bank of England to reduce their own policy rates.
Important Information
Unless otherwise stated, all information contained in this document is from Amundi Asset Management as of October 5, 2024. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product or service. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not indicative of future results. Amundi US is the US business of Amundi Asset Management.
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The move up in bond yields, US stocks (record highs in October), and Europe indicate markets' perception of a perfect scenario centered around strong US growth and falling inflation and a positive impetus from monetary easing in Europe. Although we acknowledge the resilience of the US, not all data in the US and Europe has been straightforward.
Markets are shifting their focus to economic growth as inflation continues to decline. The primary reason for this shift seems to be weakening consumption, which is now extending to wider sections of the economy. We believe this environment calls for a more prudent stance, and a tactical, incremental risk reduction rather than a structural de-risking. Overall, we are marginally positive on risk assets and suggest staying well-diversified. At the same time, we remain vigilant after the recent yield movements and are wary of potential fiscal risks.
US mega caps significantly outperformed the rest of the US markets in the first half of the year, driven by better-than-expected economic activity, exuberance over artificial intelligence and superior earnings. Looking ahead, we see a potential for a rally broadening, which will not be linear and is likely to have multiple legs. Some early signs of this rotation materialized recently after the July consumer price index report raised the chances of a Fed rate cut in September, while most recently fears on restrictions on the chip industry further supported this trend. This opens up opportunities into areas and segments (small caps, Europe, Japan) that have been left behind.
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