Investment Monthly
Market rotations
06 September 2024
Key takeaways
- Investors should prepare for a more volatile journey in markets amid global economic cooling and heightened political uncertainty
- Our base case is the soft-ish landing. If delivered, it is a path for a ‘great rotation’ in markets – and for value, EM, and small caps to perform
- In fixed income markets, we see a strong case for a ‘structural steepener’ of the yield curve. Private credits remain attractive
- EMs should benefit from a weaker US dollar, and can be an idiosyncratic source of returns in the multi-polar world
Macro Outlook
- Inflation is in retreat across western economies and emerging markets. This opens the prospect of Fed rate cuts, accelerating the global rate cutting cycle which is already underway in many emerging markets
- Our base case remains for a soft-ish landing. But global growth remains ‘multi-speed’. US recession risks have increased, and investors are worried about growth and deflation in China
- Profits growth should now ‘broaden out’, with improved growth in ex-technology stocks and markets outside the US
Policy Outlook
- The Fed needs to deliver a series of back-to-back rate cuts to get policy back to a more neutral setting. We see the funds rate falling to 3.50 per cent by mid-2025
- US fiscal policy will be a mild drag on growth in H2 and into 2025, but much will depend on the election result in November
- More policy easing is needed in China to address weak nominal growth. Officials have pledged more counter-cyclical support
- We assume another rate rise for the Bank of Japan, with inflation above target and wage growth breaking higher