Investment Outlook - Q4 2024

Navigating the Narratives

A blockbuster September employment report and recent GDP revisions have transformed the narrative surrounding the US economy. Many now question whether the Fed moved too aggressively in September by cutting interest rates by 50 basis points, and whether a more gradual approach to normalizing monetary policy is warranted. Indeed, recent data present an economic landscape reminiscent of last year’s: growth remains persistently above trend, job creation far exceeds what is necessary to maintain a stable unemployment rate and inflation is inching back towards target. Yet, the rapid shift from August’s slowdown concerns to October’s “Goldilocks” scenario invites caution. The volatility in economic outlooks underscores a cycle that is charting its own course, largely unconstrained by historical precedent.

Additional highlights

• Pension Solutions Monitor: We estimate that pension funding ratios increased slightly over the third quarter of 2024. Based on market movements, the average funding ratio is estimated to have increased from 109.9% to 110.0%.
• Fixed Income: As we head into the final quarter of 2024, we find ourselves investing against a relatively constructive macro backdrop complicated by questions that valuations leave little room to entertain. We are inclined to stay fully invested in the near term, but we are prioritizing flexibility in portfolios in what is likely to be a volatile closing act of the year.
• Equities: We recently brought our cross-asset risk view up to flat, but we are expressing this through a tactical overweight to equity and underweight to credit. Not only is this consistent with our comment that credit markets are most vulnerable, but also the arguments for vulnerability in equity markets have weakened.
• NEW - MSCI Rebalance Predictions: We started publishing our list of MSCI predictions for the upcoming index rebalance. Last quarter, our Rebalance Accuracy Score was 79, indicating a strong level of accuracy. View the newsletter to see our predictions for the November 2024 MSCI rebalance.
• NEW - IG Private Credit: Flexibility will be key to navigating the shifting narratives that continue to shape markets. In the private credit context, investors may want to consider moving up the risk spectrum into investment grade private credit to capture the potential benefits of the asset class with more favorable exposure to leverage and certainty of cashflows.