Guide to the Markets Translations
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Key themes for 3Q 2024
Growth is resilient…but so is inflation
Growth in the US economy is moderating slightly as some of the fiscal support to households is fading and pent-up savings have been largely exhausted (Guide to the Markets – Europe pg 10). In contrast, European economies are accelerating as the cost-of-living crisis is fading (pgs 28, 29, 33, 34). With resilient growth, inflation is also proving sticky (pg 7), but we do not think it will be sufficiently problematic to stop the central banks from easing slowly off the monetary brake (pgs 19,32).
Shifting gears in equity performance
As economic growth broadens we also expect earnings growth to broaden by sector and geography. Investors may wish to take advantage of relatively more attractive valuations outside of the handful of companies that have driven performance in recent years (pgs 45, 54, 62).
Higher for longer is good for bonds
The journey from ultra low to ‘normal’ interest rates has been painful for fixed income investors. But now that we’re here we think the outlook for fixed income is good. Core bonds once again provide solid income, and with earnings growth expected to be positive, high-quality credit should also prove resilient (pgs 64, 66, 71).
Risks and scenarios…with elections in mind
While our central expectation is for a benign macroeconomic scenario there are wide risks around this path. Central to these risks are upcoming elections. Whether governments bow to political pressure and deviate from a credible fiscal path is critical to whether these elections upset financial markets (pgs 20, 23, 37).
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