Co-CIO strategy update – September 2024

In this update, Henrietta Walker, Head of Investment Specialists, Co-CIO's Richard Larner and Michael Toolan cover:

•    The current economic backdrop, including the Q2 earnings season and inflation
•    The dichotomy in markets and the potential impact of US interest rate policy
•    The recessionary backdrop in the bond market and comfort with the equity position 
•    Concentration risk in the US market, UK politics, and the impact of the US election on equity markets
•    Lastly, they mention the tricky situation for bond investors

Q&A 

What is the market pricing in terms of US interest rate policy? 

The market is currently pricing in a 1% cut in interest rates by year-end and 1.5% cut by the end of January next year. 

What is the dichotomy in markets? 

The dichotomy in markets refers to the difference in expectations between the bond market, which indicates a recessionary backdrop, and the equity market, which remains optimistic and continues to push ahead. 

What are the concerns regarding the US election? 

There are concerns that regardless of the candidate who wins, deficit reduction may not be a priority, and certain policies could lead to inflation concerns and limit the Federal Reserve's ability to cut rates. 

What are some concerns related to the UK budget? 

Investors are concerned about potential increases in capital gains tax and changes to inheritance tax, which could impact their personal finances. 

What is the historical role of the bond market? 

Historically, the bond market has been a better indicator of expectations and has been more sensitive to economic conditions compared to the equity market. 

What is the current economic backdrop? 

The current economic backdrop seems to be fairly benign, with most of the Q2 earnings season going smoothly and inflation coming back down towards the 2% targets.