A busy fall ushers in a fresh start
Investment Update - October 2024
September ended in positive territory on the stock markets, after a period of quite extraordinary volatility throughout August.
Global equities thus gained nearly 2% in euros, driven by emerging markets and, more specifically, China, whose performances rose by 8% and 30% respectively, boosted at the end of the month by government announcements aimed at supporting the real estate market.
As for developed markets, the United States still led the way, posting a performance of 1,3%, while the European market’s performance dropped 0,7%.
September was a month rich in data and events for the economy and central banks.
Despite the recurring alarmism about the health of the US economy, growth in the second quarter was confirmed at 3% in real terms. The details of this third revision of GDP growth are even more encouraging, as gross national income has been revised significantly upwards: rising from 1,3% to 3,4% growth, it has caught up with GDP growth. Thus, the resulting savings rate is higher (5% vs. less than 3% previously) and reassuring with regard to US consumer health.
In Europe, economic figures are less encouraging. In particular, confidence indicators remain lacklustre. Industrial production is not increasing, in line with profit warnings from car manufacturers. However, this gloomy picture does not prevent excellent news: inflation fell below 2% for the first time since 2021, paving the way for more rate cuts by the European Central Bank (ECB).
For its part, China is finally acting to stop the waning confidence in its real estate sector by implementing numerous measures announced at the end of September: lowering interest rates, increasing household purchasing power and regulating the market to put an end to the fall in prices, which would allow households to stop saving and revive the economy. Indeed, over the past two years, real estate prices have plummeted in China, particularly affecting households that have ended up saving and buying gold.
For central banks, the time for rate cuts has arrived. The US Federal Reserve (Fed) began its cycle with a “surprise” rate cut, compared to historical precedent, of 50 basis points, in order to address a possible deterioration in the labour market. Meanwhile, the ECB, which is more cautious in its approach, has cut rates by 25 basis points every other meeting since June. But it seems to be worried about lagging behind, given the weak economic data and the speed at which the Fed is cutting rates.
Strategically, it seems appropriate to take a wait-and-see approach to the US elections in November. Historically, the weeks leading up to elections have been synonymous with volatility in the financial markets. This could be exacerbated by the recent tensions that have returned to the forefront in the Middle East. That said, economic and financial fundamentals remain strong. Therefore, although equity neutrality remains preferable in the short term, the support that central banks are likely to provide is not an element to be underestimated. Thus, buying equities during volatile phases could prove to be an attractive risk if this volatility materialises. Meanwhile, the carry provided by sovereign and corporate bonds seems attractive in this phase of monetary policy easing. In terms of sectors, the artificial intelligence theme remains a priority, even though the recent sector rotation in favour of Value has made positioning difficult. Finally, it seems appropriate to refine this offensive position via the Healthcare sector, which offers some stability in terms of profits.