LGT Private Banking House View

September 2024 - in a nutshell

The sharp rise in equity volatility at the beginning of August proved to be a correction. We shift US equities to "Overweight", while fixed income remains "Underweight", and we are taking profits in gold. The Federal Reserve is expected to cut rates in September, easing market headwinds and supporting risk-on tilt.

Data
Autore
Gérald Moser, CIO & Head Investment Services Europe
Tempo di lettura
7 minuto

House View September
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Macroeconomic environment

The inflation spike from 2021 until 2022 raised the necessity for very aggressive rate hikes, and slow disinflation has urged the Federal Reserve (Fed) to keep monetary policy ultra-tight for 13 months now. However, with inflation now under 3% and sluggish economic growth, the current ultra-restrictive monetary policy appears increasingly out of sync with the evolving economic landscape. With signs of economic cooling and labour market weakening, meaningful rate cuts will be imminent by year-end. 

Investment strategy 

The Investment Committee, in its monthly meeting, decided to shift the US equity allocation to "Overweight", while reducing the cash position to "Neutral" and maintaining an "Underweight" in fixed income. We also take profits in gold, moving it to a "Neutral" position from "Overweight", and retain an "Underweight" stance in alternative investments, particularly insurance- linked securities. We expect the Fed to begin cutting its key policy rate in September, which should ease market headwinds and support the risk-on portfolio tilt.

Equity strategy

A sharp rise in equity volatility in an illiquid market at the beginning of August proved to be a correction, not a trend reversal. Statistically, corrections of this magnitude occur three times a year, and most of the losses have now been recovered. With a controlled economic slowdown and simultaneously declining inflation and thus an intact prospect of interest rate cuts, there is a constructive fundamental backdrop in the US, which is why we have reinstated an "Overweight" in US equities. With positive earnings growth for the fifteenth consecutive quarter and a constructive outlook for 2024, S&P 500 companies are showing that they have been able to absorb the moderate economic slowdown so far. We continue to expect increasingly broad-based earnings growth in the US, which could accelerate further into 2025. Based on our expectation of a cycle of interest rate cuts, we upgrade the highly interest rate-sensitive real estate sector to "Overweight". After a strong underperformance since the start of the interest rate hiking cycle in spring 2022, valuations now appear attractive in our view. In addition, a stabilisation of asset values and earnings momentum as well as the focus on the domestic market suggest an interesting entry point. 

Fixed-income strategy

We maintain our current "Neutral" allocation between government and corporate bonds and confirm our "Underweight" in emerging markets (hard currency). Given the increased fiscal uncertainty in the United States, we are short government bonds and neutral on euro bonds. With the exception of euro investment grade corporate bonds, we consider the credit sector to be rather expensive.

Gold

Gold has recently hit record levels given strong momentum, surpassing USD 2500 per ounce, largely driven by market expectations that the Fed is likely to cut interest rates. This notable milestone, reflecting a significant year-to-date increase, positions gold as one of the best-performing major assets in 2024. We confirm our six-month gold price target of USD 2450, take profit and reduce the gold position back to its strategic weight for the time being.

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