Horizon Q3│2024
Reading time:5 MIN
Dear Readers,
After a very strong performance in the first quarter, equities lost some momentum in the second quarter, although the economic outlook in Europe and China has improved and earnings expectations for 2024 and 2025 have risen. In addition to the uncertainty caused by the new elections in France, this is due to the fact that not only has the economy improved, but inflation has been more persistent so far. Interest rate cut expectations have been reduced. Bond yields have risen. However, riskier segments of the bond market have benefited from falling credit spreads. From a regional perspective, emerging Asian equities, the UK and the US were the best performers. In Europe, small caps benefited from the improving economy and the first interest rate cut by the ECB. In the US, however, market breadth remained low. The real winners were base metals, silver and gold.
What can we expect in the second half of 2024? The improved outlook for economic and earnings growth is positive for riskier assets, especially equities. However, they are already pricing in very good prospects overall and very little risk. The opportunities are therefore more likely to lie beneath the surface – in Europe, for example, were it not for the election risk in France and the US – as well as in small caps and commodities. Like the equity markets, safe government bonds are barely pricing in the risk of prolonged inflation. Unexpectedly high inflation therefore remains a major risk for both markets. Stronger economic momentum is therefore not entirely positive, as it could reignite inflation, especially as many disinflationary base effects are likely to have largely run their course. At present, markets are repeatedly reacting negatively to solid economic data – "good news is bad news" and vice versa. Inflation is likely to remain one of the defining themes of the summer, with important implications for asset allocation and the correlation between equities and safe government bonds. The second major risk is a significant slowdown in growth, which would be negative for equities, commodities and high yield bonds. Other important issues this summer are likely to be the French elections and the US election campaign. On the one hand, Europe's ability to act is at stake. On the other hand, Trump could inflame sentiment against Europe (and China) by threatening a trade war. Both could continue to support the US dollar and US equities despite their overvaluation.
Our portfolio positioning is moderately constructive, with a focus on commodities, corporate bonds and small caps, and a neutral equity allocation. Given the optimistic investor sentiment and positioning, the stretched valuations of US equities in particular, and the persistently high risks (inflation, US economy, elections, geopolitics), we do not believe that a more aggressive positioning is appropriate.
In the Insights interview on page 14, Dennis Nacken gives an insight into how single family offices, which manage the assets of entrepreneurial families and high net worth individuals, work and invest, and what other wealthy investors can learn from them.
Enjoy the read!
Publisher
Prof. Dr. Bernd Meyer
Prof. Dr. Bernd Meyer has been Chief Investment Strategist at Berenberg Wealth and Asset Management since October 2017, where he is responsible for discretionary multi-asset strategies and wealth management mandates. Prof. Dr. Meyer was initially Head of European Equity Strategy at Deutsche Bank in Frankfurt and London and, from 2010, Head of Global Cross Asset Strategy Research at Commerzbank. In this role Prof. Dr. Meyer has received several awards. In the renowned Extel Survey from 2013 to 2017, he and his team ranked among the top three multi-asset research teams worldwide. Prof. Dr. Meyer is DVFA Investment Analyst, Chartered Financial Analyst (CFA) and guest lecturer for "Empirical Research in Finance" at the University of Trier. He has published numerous articles and two books and received three scientific awards.
Prof. Dr. Bernd Meyer
Chief Investment Strategist and Head of Multi Asset
