In October, bond yields rose sharply, while global equities dipped slightly by 2%. Markets began pricing in a higher likelihood of a Trump victory due to narrowing polls and strong betting odds, alongside robust U.S. economic data. Consequently, 10-year Treasury yields increased by 47 basis points to 4,28%, reflecting fiscal concerns and changes in markets expectations for long term rates. Chinese equities fell 6% after previously rebounding 55% from January lows, as optimism about future stimulus waned.

The U.S. economy continued to show resilience, with 3Q24 GDP growing at 2.8% q/q saar, above the long-term average. Consumer spending remained strong, projected to grow over 3% on an annualized basis. The employment report showed robust job growth with 254,000 jobs added in September, and CPI inflation neared the target at 2.4% y/y, signaling the Fed's inflation fight is nearing its end.

In China, the sentiment rally began fading due to pessimism about future stimulus. On the positive side, the government is committed to putting a floor on growth but is not trying to stimulate strong growth. Therefore, more demand-side stimulus seems unlikely from here given debt concerns. 3Q24 GDP grew 4.6% y/y, consistent with expectations but slower than 1H24. October data, like retail sales (3.2% y/y) and industrial production (5.4% y/y), improved from last month, reflecting the newly-implemented government measures. In other developed markets, economic conditions continue to be rocky, particularly in the Eurozone. Eurozone PMIs continue to be in contraction territory at 49.7 in October. Also, 3Q24 GDP came in at 0.4% q/q, which is a weak figure but was unchanged from last quarter. In Japan, real wages grew 1.5% in August while retail sales grew 0.5% y/y in October, marking a slowdown compared to last month for both figures. For this and other reasons, the Bank of Japan did not change its policy interest rate of 0.25%.

The third-quarter 2024 earnings in the United States are on track to grow by 5.4% year-over-year and 2.6% quarter-over-quarter, with eight out of the 11 sectors expected to see positive growth. Energy, Materials, and Industrials are the largest drags, similar to previous quarters, while Technology, Healthcare, and Financials are expected to grow the most. The broadening out of earnings is expected to improve and be fully realized in 2025. Regarding performance, higher yields were a big headwind to global equities, which declined slightly in October.

The rise in yields and volatility was notable, despite the Fed starting to lower rates. Long rates rose due to increased fiscal uncertainty and strong U.S. economic data. Betting odds of a Trump victory increased, stoking fears about future deficits if the Tax Cuts and Jobs Act gets extended, which is expected to add around $4 trillion to the debt over the next several years. The Fed is expected to cut rates by 25bps in November, affecting short rates, but long rates may remain elevated until clarity about the debt trajectory improves.

For additional yield and diversification, investors should consider alternatives, such as private equity and infrastructure. Over the past decade, private equity has outperformed the 60/40 portfolio by 6.3%, and sectors like transport have provided 6.8% more income. In times of high rate volatility and unstable stock/bond correlations, alternatives can significantly enhance traditional portfolios.

Looking ahead, election results will likely clarify the direction of policy, but investors will still face challenges like geopolitical tensions and yield volatility. Investors should continue to focus on the opportunities like the future broadening out in performance (to indirect AI beneficiaries like utility companies), falling rates, and the normalization in exit activity within alternatives. Adhering to one’s investment plan, which includes rebalancing and making adjustments based on your goals, remains the best strategy over the long term.