Investment Perspective Public Markets Summary and Outlook September 2024

Economic outlook 

• Inflation continues to moderate globally, approaching targets and encouraging the US to cut rates by 0.50%. 
• Economic growth had slowed and stabilised in the US while Europe’s growth has improved modestly. Australia’s outlook is less positive with GDP trending down but has not been as bad as consensus has feared.  
• Labour markets have weakened, with unemployment rates rising across US and Australia, but the rate of involuntary losses hasn’t picked up, and labour force growth and participation has risen.  Wage rises are moderating albeit with a lag. 
• Money flows arising from government spending and bank lending has been supportive, with some key measures such as M2 money supply switching to positive in the last few months. We expect government spending to be a larger part of the economy than the past decade as governments deal with multiple long term structural pressures. 

Market scenarios for 2024 

• Markets are pricing a “goldilocks” scenario to continue despite recent concerns about recession risk rising.  However, the US Federal Reserve 0.50% rate cut and likely continued successive cuts increase the chance of a soft economic landing. 
• Risks to the downside include a weakening US and Australian labour market and rising recession risks, impacting equities as company earnings are likely to fall with declining business and consumer activity. 
• Our central scenario remains to be a more balanced for equity and credit markets growth supported by US rate cuts and likely Australian rate cuts in the next 6 months.  
• On the positive side we may see more equity market strength if positive signs of a soft landing are confirmed and as election concerns and seasonal market volatility are cleared, or if China’s more forceful stimulus measures show some signs of success. A performance chase may well ensue into the seasonally strong year-end period.  

Themes influential this year 

• US elections rounds out a year dominated by many national elections, with geopolitical volatility impacting oil, commodity prices and trade. We expect a heightened risk from politics and geopolitics this decade.  
• Climate change and energy transition remain long term themes, albeit we have observed some fading enthusiasm for sustainable and ESG strategies.  We do believe that there are opportunities in these themes for truly impactful strategies that also deliver solid investment returns as there will need to be a heightened level of spending required to mitigate climate change and prepare for energy transition. (The economics of green energy projects will improve with lower interest rates.) 
• AI converges with other themes such as data centres and energy to power them in a mix of hype and a land grab for opportunities in these and other industries. 

What to watch in the next few quarters 

• As rate cuts take hold, expect a recovery in economic growth and company earnings in the first half of 2025, while accelerating economic activity may cause inflation to pick up again more visibly in the second half of 2025. 
• The US election resulting in a divided government may have limited the impact on business and the economy from dramatic policy changes.  However, if there is a clear majority, expect policy shifts to buffet the economy.  
• New share market initial public offerings pick up which supports exits in the private equity market. 
• AI becomes a persistent theme as its tangible productivity benefits become evident. The widespread adoption of AI assistants in software and work practices is expected to further boost the growth of Nvidia, major tech companies, and chip manufacturers.   
• Chinese stimulus efforts still struggle to be effective but more forceful efforts could jolt confidence, while Japan finally rises from a zero cash rate and deflationary 25-year period. 

Quarterly Market Performance Commentary to 30 September 2024 

• Equity markets rose in the US and most markets around the world during the quarter. 
• 10-year government bond yields declined from 4.31% to 3.97% for Australia and 4.40% to 3.78% for the US. 
• Credit spreads contracted a little in Australia and were little changed in the US and Europe over the quarter. 
• The USD weakened significantly against the Australian Dollar and Euro and Japanese Yen over the quarter. 
• Commodities were mixed over the quarter with oil and other energy commodities weaker, base and precious metals stronger and agricultural commodities mixed with coffee particularly strong. 
• Volatility measures were mixed with weakness in US Equity VIX, oil and gold, while there were strengthening volatility measures for currency and bonds. 

 

 

Click here for the World Economies September 2024 Update

Click here for the Asset Class Performance September 2024 Update

 

This information is general in nature and is provided by Partners Wealth Group. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.