INVESTMENT NEWS OCTOBER '24

Monthly-update-investment-news

Speed read

  • September saw monetary stimulus by Central Banks that was only surpassed in the past 25 years during the Lehman and Covid crises. As many as 21 Central Banks cut rates. Among them, as expected, the FED (-50bp) and the ECB (-25bp).
  • The question is, why are so many Central Banks cutting interest rates at the same time when inflation is not yet under control and the uncertainty regarding inflation, as a result of all the geopolitical unrest in the world, is high?
  • It seems as if Central Banks, also in view of all the geopolitical risks, want to try to avoid a recession at all costs and therefore accept a structurally somewhat higher inflation.
  • Despite the strong performance of equities (S&P 500 +22%), Silver (+31%) and Gold (+28%) remain the top-performing assets this year.
  • Commodities have not been this undervalued relative to stocks since the 1960s.
  • Geopolitical crises in the past have typically had only a short-lived negative impact on the S&P 500.
  • In addition, the profit outlook for companies remains good and share buybacks continue unabated.
  • Despite this, Goldman Sachs expects that the S&P 500 will end the year at 5,600, which would imply that the S&P 500 will not rise further in the next three months.

ECONOMY

September saw monetary stimulus by Central Banks that was only surpassed in the past 25 years during the Lehman and Covid crises. As many as 21 Central Banks cut interest rates. Among them, as expected, the FED (-50bp) and the ECB (-25bp).
Although the ECB has now succeeded in getting headline inflation (+1.8%) below the 2% target, it is still above it in both the US (+2.5%) and the UK (+2.2%). The interest rate cuts are all the more remarkable when we look at core inflation. In the US (+3.2%), the UK (3.6%) and the Eurozone (+2.7%), it is still significantly above the 2% target. The question is, why are so many central banks cutting interest rates at the same time if inflation is not yet under control and there is great uncertainty about inflation as a result of all the geopolitical unrest in the world?

monetary easing - October 2024

Are central banks convinced that inflation will soon fall significantly further, because the global economy is deteriorating rapidly? After all, many leading indicators have been indicating for some time that a recession is imminent. On the other hand, labour markets are still tight, and wages are still rising above average. This remains positive for consumption. Corporate profitability is also still strong, which is positive for capital investments. According to the Atlanta FED, economic growth in the US (+2.5% annualized) was again better than expected in 24Q3. So, what do Central Banks see that most economists do not yet see? It seems as if Central Banks, also in view of all the geopolitical risks, want to avoid a recession at all costs and therefore accept a structurally somewhat higher inflation. Nevertheless, investors now see a recession in the US as the biggest risk.

evolution of Atlanta Fed - October 2024

Financial Markets

Despite strong equity performance (S&P 500 +22%), Silver (+31%) and Gold (+28%) remain the top performing assets this year. The Commodity Index (+6%) is remarkably lagging. Thanks to the announced monetary and fiscal stimulus by the Chinese government, the best performance in September was achieved by the Shanghai Composite Index (+19%). Oil was the only asset that showed a negative return both year-to-date, in 24Q3 and in September.

Commodities Dow Jones Ratio - October 2024

Commodities haven't been this undervalued relative to stocks since the 1960s. In the early 70s, the rise and outperformance of Commodities began as a result of the Geopolitical tensions in the Middle East. Given the current tensions and undervaluation of Commodities, this picture could easily repeat itself. Whether this means that the outlook for equities is bad, remains to be seen. Geopolitical crises in the past have typically had only a short-lived negative impact on the S&P 500.

S&P 500 Stock price index - October 2024

In addition, the profit outlook for companies remains good and share buybacks continue unabated. Goldman Sachs expects corporate profits to rise in both 2024 (+8%) and 2025 (+6%). However, Goldman Sachs predicts that, due to all the geopolitical uncertainty and the upcoming US elections, the S&P 500 will end the year at 5,600, which would mean that the S&P 500 will not rise further in the next three months.

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