Understanding Market Conditions

What are the current global market conditions as of Q4 2024?

A mildly positive risk stance is the way forward as the economy is unlikely to enter a recession and inflation continues to decline, leading central banks to progress on their easing cycles. However, monetary easing alone would be unable to boost the markets sustainably. Rate cuts would take time to disseminate to the broader economy. We need favorable growth, strong corporate earnings and investments to enhance productivity for market performance in the long run. In particular, we see opportunities in following categories: 

Cross asset. We are constructive on duration, and explore global divergences across the curves. While staying positive on the US and Europe (slightly less so than before), we turned optimistic on the UK. In general, DM yield curves would continue to steepen, but some near term differences will prevail. In EM debt, yields are attractive but noise around US tariffs could affect segments with tight valuations. We are exploring entry points in equities and remain marginally positive on the UK and Japan. Gold can provide resilience in times of high geopolitical uncertainty, particularly when central banks are cutting rates.

Tactical and active on government bonds, positive on carry in credit. Yields on USTs are attractive from a long-term perspective allowing us to stay close to neutral. An active approach is crucial as central banks normalize rates in the US and Europe at different speeds. We upgraded UK duration amid receding inflationary pressures and persisting growth concerns. In US credit, we prefer financials over non financials, and in the EU, we like financials and subordinated debt, but are cautious on consumer and retail sectors. 

Prioritize fundamentals/valuations in equities. The transition to an economic recovery should help the markets. But until that happens, markets will be less directional and more dependent on rotations and valuations. We await a broadening of earnings outside mega caps and stay balanced in the US, exploring high quality defensives and value over growth. Even in Europe, we aim for a balanced stance through quality cyclicals and defensives.

You can find more information about global market trends here. 

What are the current (Q4, 2024) US market conditions?

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. The other narrative is that the Fed would not have implemented a big cut without having apprehensions on the economic front. Our view is that truth lies somewhere in between – a combination of the two narratives will most likely play out, depending on: 

• The US being on a slight deceleration path, downside revision to eurozone. We maintain our views of only a mild deceleration. Labour markets, consumption pattern and savings rate remain key to monitoring the extent of the slowdown. In the eurozone, we trimmed our real GDP growth forecasts for 2025 from 1.2% to 1.0% mainly due to weak domestic demand. 
• A Fed 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. Higher number of Fed rate cuts means lower terminal rates for the Fed, with ripple effects on the ECB and BoE. 
• 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. In Europe, it’s the opposite, and has caused investment and productivity gaps with the US over the years. 
• China’s monetary stimulus is a definite boost to market sentiment. The monetary easing and changes to housing policy signal a renewed effort by the country to support the economy, but we await clarity on fiscal stimulus.
   

For more information about the trends shaping US markets, visit our Dynamic Markets, Agile Thinking content hub.

How can market conditions impact investment decisions?

Market conditions — particularly in times of market uncertainty or volatility — can trigger biases that behavioral finance has shown can tempt investors to stray from their financial plan and make hasty financial decisions. It’s important for financial professionals to be familiar with these biases so they recognize them in their clients and advise them away from potential pitfalls. Some common examples include:
 

• Confirmation bias: Tending to misconstrue news or information as confirmation investors are making the right decisions, even if that information is flawed.
• Loss aversion: Weighting concern for losses over the potential for gains. This can cause investors to sell “winners” too early or hang on to “losers” for too long.
• Recency bias: Chasing “winners” irrationally or believing that an investment will continue to rise or fall based solely on recent performance

  
As market conditions continue to shift, Amundi US can help financial professionals identify opportunities and provide find the best solutions for their clients.  For example, our analysts believe the potential combination of resilient growth, supply chain rebalancing and Fed rate cuts could create opportunities in EM — particularly those with attractive valuations.   

Dynamic markets demand agile thinking

Amundi US offers a range of fund solutions for today’s dynamic markets. Learn more at  amundi.com/usinvestors/Investment-Ideas/Dynamic-Markets-Agile-Thinking .

ECB= European Central Bank, DM= Developed Markets, EM = Emerging Markets

Important Information

Unless otherwise stated, all information contained in this document is from Amundi Asset Management as of October 9,2024. 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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^†Diversification does not assure a profit or protect against loss. ^‡Duration: A measure of the sensitivity of the price of a fixed income investment to a change in interest rates. *Correlation - The degree to which assets or asset class prices have moved in relation to one another. Correlation ranges from -1 (always moving in opposite directions) through 0 (absolutely independent) to 1 (always moving together). 

Definitions:

Cyclicals: Stocks whose performance moves in sync with trends in the economy, often because they make or sell items and services that are in demand when the economy is doing well. Defensives: Stocks that generally provides consistent dividends and stable earnings regardless of the state of the overall stock market. Duration: A measure of the sensitivity of the price of a fixed income investment to a change in interest rates. Inflation: A general increase in prices and fall in the purchasing value of money. Emerging markets: Economies of developing nations that are becoming more engaged with global markets as they grow.

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