Market Overview

As we transition into the final quarter of 2024, macroeconomic data and policy shifts are driving adjustments to our market outlook and tactical positioning. September has shown that while inflationary pressures are easing, uncertainty around the upcoming U.S. election is adding complexity to near-term strategies. Key indicators such as the August Producer Price Index (PPI) and Personal Consumption Expenditures (PCE) Price Index highlighted that inflation remains contained but not fully defeated. Despite a projected 25-basis point rate cut by the Federal Reserve in its upcoming meeting, the divergence in economic performance across sectors is compelling investors to reassess risk positioning.

Additionally, values-aligned investing is gaining prominence, especially in the lead-up to the U.S. election. According to a recent study from September 2024 by the Global Impact Investing Network (GIIN), investments that align with social and environmental values have shown resilience and, in some cases, outperformed traditional benchmarks during periods of heightened uncertainty. This trend could also play a significant role in shaping electoral outcomes, as voters increasingly prioritize candidates with strong stances on ESG and sustainable development policies.

Key Changes in the Macroeconomic Landscape:

1. Election-Driven Market Sensitivity:
   Historical trends show increased volatility and weaker performance for equity markets in the weeks leading up to the U.S. presidential election. With the race expected to be closely contested, investor sentiment has become more cautious, impacting capital allocations and increasing liquidity concerns.
2. Divergent Inflation Trends:
   While headline inflation has cooled, core inflation remains sticky, primarily driven by rising service costs. This divergence complicates the Fed’s decision-making and has led to a more nuanced approach to rate cuts, with expectations now leaning toward a slower, more measured easing cycle.
3. Global Real Estate Recovery:
   According to BlackRock’s recent commentary, the global real estate market, particularly in Europe and the UK, is starting to recover after a prolonged downturn. Structural tailwinds like reshoring, logistics demand, and green building regulations are driving this shift, making real estate a focal point for tactical allocation.
4. Persistent U.S. Growth Outperformance:                                                 U.S. economic growth continues to outpace global peers, supported by resilient consumer spending and a robust labor market. However, leading indicators suggest a potential slowdown in 2025, making near-term GDP data critical for maintaining the current equity exposure.

Strategic Themes for September 2024:

Real Estate Market Brightening: The $13.2 trillion global real estate market is showing signs of stabilization, particularly in logistics and energy-efficient assets.

Mega-Cap Tech Sensitivity: Investors are cautious due to extended valuations and geopolitical risks, making selective exposure essential for tech allocations.

Fixed Income Focus on Quality: Short-term, high-quality credit remains attractive given the potential for further Fed easing and stabilization in the rate curve.

Values-Aligned Investing Gaining Momentum: ESG and values-aligned investments are gaining traction, supported by strong performance and increased focus in the lead-up to elections.

Questions for Further Discussion:

1. Impact of Values-Aligned Investing on Market Sentiment:
   How are values-aligned investments performing relative to broader indices, and what could this mean for post-election market dynamics?
2. Navigating the Current Inflationary Landscape:
   Given the divergence in headline vs. core inflation, how should we adjust our exposure across asset classes, especially in sectors sensitive to rate changes?
3. Sector Positioning in the Face of U.S. Growth Outperformance:     With the U.S. still leading in economic growth, are there underappreciated sectors (e.g., industrials, logistics) that may offer near-term upside?

– Jason Ray

Sources

• BlackRock Investment Institute (September 2024 Weekly Commentary): Real estate market outlook and AI themes.
• Schwab Market Insights (September 2024): Inflation data, Fed policy trajectory, and sector performance.
• GIIN September 2024 Impact Investing Report: Values-aligned investing and its correlation with market performance.

All written content is for information purposes only. Opinions expressed herein are solely those of Zenith, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.