Macroeconomic and political facts for the 3rd quarter of 2024
For several months now, and particularly during the 3rd quarter, the statistics published have highlighted the growing fragility of economic rhythms in the main regions. At global level, industrial and manufacturing activity is now contracting overall. It is the services sector that is escaping the recession, but in Europe and China in particular, we are seeing a downturn in household consumption. At the beginning of August, the publication of mediocre statistics on the US employment market also raised fears of a hard landing for the US economy. Subsequently, however, other more reassuring economic data helped calm the situation. Macroeconomic scenarios in the main regions are therefore currently highly uncertain and a source of concern. In addition to these economic concerns, there is the extremely tense geopolitical situation in the Middle East and the delicate political and budgetary situation in France. Faced with these sources of stress, investors nevertheless found two reasons for satisfaction at the end of the quarter.
The last of the major central banks to begin its monetary easing cycle, the US Federal Reserve made its first rate cut (0.50%) for more than four years on 18 September. This monetary easing was made possible by the sharp fall in inflation. Compared with the stratospheric levels reached in 2022 (9.2% in the US and 10.6% in the eurozone), the latest figures are much more reassuring (2.5% in the US and 2.2% in the eurozone). The second element of support is that, at the end of September, the Chinese government and central bank announced very substantial measures to boost sluggish growth.
In the end, all these factors were neutralised. With the exception of a brief moment in August, risk aversion on the markets remained low overall. Equity markets recorded small gains over the period (in the region of 2-5% for the main indices). On the bond markets, the start of the rate-cutting cycle and - above all - the expectation that it will continue, explain the sharp fall in interest rates in the 3rd quarter. The US 10-year yield fell by 60 bps to 3.80%. The same is true of the German 10-year, down 40 bp to 2.10%.
This hope of an easing in monetary conditions is a favourable factor, provided that the economies avoid recession. This ‘tepid’ scenario is clearly the best for the markets, and investors are still betting on it. We still have our doubts about this ‘ideal’ scenario.
We are not entirely convinced that the inflation battle has been won once and for all. Core inflation, i.e. inflation excluding the most volatile items such as energy, seems to be stabilising at a high level: 3.2% in the United States and 2.7% in the eurozone. We also have economic concerns for Europe, where we believe the risk of recession is high. As a result, we have maintained our generally cautious strategies over the quarter.
For PEA-PME accounts, we sold SergeFerrari and Kerlink and took profits on NFL Biosciences.
For PEA account holders, we significantly reduced our weighting in small caps in July. In August and September, we took advantage of the market weakness to rebalance the ‘quality growth equities’ theme with investments in MW Actions Europe, which was up 8.78% at 30 September.
For holders of securities accounts and life insurance policies, we also made a number of arbitrages.
Notable investments included Christian Dior and Nestlé, which offer a significant valuation discount to their historical average and that of their respective sectors. We also invested in Exxon Mobil.
Among the major sell-offs, we took profits on stocks such as Apple, Unilever and the Argent ETF.
As for the bond pockets of life insurance policies, we continued to increase their weighting via Investment Grade investments in two vehicles, MW Obligations Internationales (+2.12% at 30 Sept) and Amundi Corporate Bond (+3.50% at 30 Sept), offering attractive actuarial rates.
At 30 September, 60-70% of dynamic profiles were invested in equities.
Accounts with a balanced profile have an equity exposure of 35-45%, and for cautious mandates, 15-25%.
Writing completed on 18 October 2024