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Thursday 01 August 2024
Global Investment Views, Equity, Fixed income
August 2024 | 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.
01 | We expect a mild deceleration expected in the US in the second half of the year, characterized by a rebalancing in labor markets, weakening consumption and the dichotomy between affluent and low-income consumers.
02 | There is little room for errors in monetary policy. Hence, central banks are being patient and are basing their decisions on incoming data, which according to us confirms the disinflation path.
03 | In the US, high levels of government debt will likely affect rates. As we get closer to the US elections, the narrative on how deficit spending will affect borrowing costs in long term will likely get louder.
Important Information
Unless otherwise stated, all information contained in this document is from Amundi Asset Management as of July 25, 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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In addition to central banks' policies and inflation trends, we believe domestic politics and their impact on international relations will be important determinants of financial markets and economic direction. Our economic outlook is relatively robust, but valuations are tight in some areas of risk assets, allowing us to stay slightly positive on equities overall. However, we reduced our stance slightly in developed market equities and believe investors should consider building protection in some areas here. In bonds, we are constructive on US duration and core Europe, while we maintain our cautious stance on Japan. In corporate credit, EU investment grade is our favorite area.
In developed markets, we move to neutral from positive on Japan and we see scope for rebalancing in favor of the UK, European small caps and the US. While the US is displaying strong earnings, we believe Europe should benefit from the moderately resilient economic environment and rate cuts. In government bonds, we are positive on the US and core Europe, along with Italy. In credit, valuations in Euro investment grade appear attractive. We also look for selective opportunities across emerging markets and see oil as providing protection from geopolitical risks.
Recent inflation and growth data from the US indicates continued strength in the economy, leading Amundi and various institutions including the International Monetary Fund, to revise US growth forecasts upward. We believe current strong momentum will continue into Q2, but expect a deceleration in H2. Inflation data also points to stickier prices, with upside risks, especially around oil, from the recent geopolitical escalation, opening a difficult phase for central banks. We expect fewer rate cuts but higher uncertainty around policy actions.
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