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Tuesday 17 September 2024
Investment Talks
September 2024 | The US Federal Reserve will begin its easing cycle this month, capping a remarkable period of restrictive monetary policy that has not been experienced since the early 1980s. The tighter policy stance has helped cool inflation and moderate economic activity. Now, the Fed hopes to ease off the policy brake in a way that preserves continued disinflationary progress towards its long-term 2% inflation target while also supporting their second mandate of "maximum employment". In this note, we highlight the uniqueness of this monetary policy cycle, how financial markets are anticipating significantly more policy easing than seen in recent easing cycles, and the financial market implications.
01 | This month's actions by the US Federal Reserve to begin its easing cycle will cap a remarkable period of restrictive monetary policy that has not been experienced since the early 1980s.
02 | Financial markets are anticipating significantly more policy easing than seen in recent easing cycles, which will have financial market implications.
03 | While US fixed income yields are reasonably attractive relative to the past 15 years, some fixed income markets have already moved ahead of the Fed this cycle, and we suggest caution in projecting prior easing cycle market performance onto the current market.
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Unless otherwise stated, all information contained in this document is from Amundi Asset Management as of September 16,2024. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product or service. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not indicative of future results. Amundi US is the US business of Amundi Asset Management.
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Passive strategies have generally have fared well over the past decade, which has made it easy to forget the long periods during which active managers outpaced passive approaches. The reasons we believe market concentration will decline include (1) a shrinking earnings advantage for the top ten companies, and (2) seemingly unsustainably high valuations. We believe investors may benefit from investing with active managers that thoughtfully select their exposure based on the earnings and valuation profile of each stock.
The first debate between US presidential candidates Trump and Harris was a fractious exchange that shed little new light on policy details. Democratic candidate Kamala Harris was deemed to have performed better than her Republican rival Donald Trump, according to snap polls conducted after the debate. This implies that Harris will likely see an extension of the honeymoon period that has dominated since her nomination. While the US election debate was relatively disciplined and covered all the major domestic and foreign policy issues, it was light on the two candidates' policy agendas as both stuck to high-level answers with little in the way of specific measures or details of how they would accomplish their objectives.
Since early 2023, a handful of the market's top stocks, including the Magnificent Seven, have surged in earnings and valuation, and have dominated returns. Underneath the surface of today's concentrated, crowded market, sharp earnings recoveries may soon play out and structural changes may occur in many industries, creating new winning and losing stocks. Separating the potential winners from the rest of the market will be key to portfolio success over the next year, and beyond. With so much uncertainty and variability across industries and companies, we believe active management is essential to capturing the momentum of a changing market.
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