investment insights
Steering portfolios through volatile market tides
Has the recent market turbulence altered the investment outlook?
US growth and consumption are slowing, and the labour market is easing. But the economy remains in decent shape.
With inflation nearing its target, the Fed will now move to ease policy. We expect an accelerated path towards a more neutral stance, with cuts at each meeting starting September.
The presidential race now looks too close to call, although a divided Congress is more likely if the Democrats win, and a united Congress in a Republican victory.
Tariffs would be the key variable under a Trump presidency. These would be inflationary and halt Fed rate cuts sooner. If Republicans take the presidency and both Houses, nominal growth could also be higher. This may be the most positive scenario for equities and the dollar.
A Harris administration would imply continuity. In this case, we see Fed cuts until mid-2025 towards a ‘neutral’ level of around 3.5 percent. A Democratic win could favour more defensive stocks.
Barring external shocks, 2025 should see growth near trend levels, as long as central banks indeed cut rates to neutral.
The recent turbulence in markets is a powerful reminder of how fast market tides can turn.
Faced with many uncertainties, we have maintained our balanced approach, anchoring our strategy in our strategic asset allocations.
A soft landing, easing monetary conditions and solid earnings growth are supportive for risk assets.
Stock markets can reach new highs, and outperform bonds, but geopolitical and US election risks urge a degree of caution.
That’s why we keep equity allocations at strategic levels for now, with a preference for UK stocks.
Overall, we remain attentive to selective buying opportunities.
In fixed income, we maintain our exposures at strategic levels.
We still see a case for buy-and-hold investors to lock in today’s high sovereign bond yields.
In FX markets, the dollar’s yield advantage and haven demand from geopolitical risks will keep supporting the US currency. But the dollar’s biggest gains may be behind us as the Fed eases policy.
Overall, investors need to stay vigilant. We remain poised to take advantage of new investment opportunities as market tides shift.
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