Investors’ Outlook: Falling into place

Falling into place

As summer fades and this publication returns from its break, our team has been raking through the changing leaves that have shifted market dynamics.

Early last month, investors faced a series of market-moving events: weak US employment data, a surprise interest-rate hike by the Bank of Japan, underwhelming earnings from some of the technology sector’s heavyweights that had long buoyed the stock market, and rising tensions in the Middle East. These developments reignited fears of a recession, triggering a sell-off. It served as a sobering reminder that perhaps some investors had been too optimistic, believing the US economy could glide through without facing a downturn.

Viewing the meltdown as a healthy consolidation at a high level, we took the opportunity to strategically add equities to our portfolios, buying the dip¹ as we see attractive upside to US and European stocks. And markets have since rebounded.

Given that August is typically characterized by light trading volumes, limited news flow, and many investors on holiday, it’s quite possible that the wild swings were amplified by these illiquid conditions.

We’ve maintained a steady focus and kept our heads down with a moderate risk-on stance², and we’re particularly pleased with our overweight³ stances on gold and government bonds. Despite the deteriorating economic outlook, we believe we have not yet reached an inflection point. Still, we remain vigilant, aware of the sudden squalls that could create potential pitfalls in geopolitics, macroeconomic shifts, or concerns about government deficits.

On a brighter note, the US inflation rate eased for a fourth consecutive month in July, bolstering expectations for the Fed to come through with a long-awaited rate cut this month. And Chair Jerome Powell’s key speech⁴ at the Fed’s annual meeting in Jackson Hole, Wyoming, signaled that the rate cut is indeed around the corner, with Powell saying, “the time has come for policy to adjust” as inflation is on a trajectory towards its 2 percent goal and amid an “unmistakable” slowdown in the labor market. He didn’t provide details as to how big the cut would be or what their roadmap looks like through the end of the year, but Powell made it clear the Fed doesn’t “seek or welcome further cooling of the labor market”. That might indicate that policymakers are open to reducing rates at a faster pace.

In this Investors’ Outlook, we explore the US labor market, delve into the substrata of India’s economy to see if it could one day match China’s strength, and trace the patterns of currency markets.

As the leaves turn and the winds shift, we remain rooted amid jittery markets fueled by recession fears and anticipated policy changes. We aim to help you harvest the opportunities this season brings.

1. Purchasing assets when their prices have fallen, like during a market downturn or after significant drop.
2. Approach where investors are willing to take on more risk in pursuit of higher returns.
3. Overweight means the Vontobel Investment Committee has a higher preference for an asset class or sub-asset class.
4. Source: Fed Chair Jerome Powell’s speech, August 23, 2024. https://www.federalreserve.gov/newsevents/speech/powell20240823a.htm