⚡ Is It Time to Reallocate Away from U.S. Equities?
(Strategic Moves for Investors) // Macro Mornings - #GlobalEconomy #FedPolicy #InvestmentStrategy #Macro #Finance #Investing
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Global Growth at a Crossroads
Slowing Global Growth: Leading indicators suggest global growth is decelerating, with manufacturing PMIs contracting for two consecutive months. Services, however, remain resilient, contributing to the 3.1% projected global GDP growth for 2024, down from 3.4% in 2023.
Emerging Markets in Focus: While U.S. equities have rallied 36% over the past year, EM excluding China is expected to outperform, with cyclical sectors like semiconductors in Taiwan and South Korea showing strong demand. However, growth in semiconductor sales is plateauing, signaling potential slowdown risks.
Inflation Cooling, Policy Easing Begins
Inflation Moderation: Inflation is projected to fall to 3.1% globally in 2024, down from 3.7% in 2023. Services inflation is stabilizing, but inflationary pressures in core goods have already normalized, creating space for central banks to further ease policies.
Fed's Rate Cut: The U.S. Federal Reserve's 50-basis-point rate cut in September 2024, the first since 2001, marks the beginning of a broader rate-cutting cycle. Historically, the S&P 500 has rallied by an average of 18.9% during similar easing cycles without a recession.
Strategic Shifts in Portfolio Allocation
Equity Reallocation: Weaker earnings growth in the U.S., projected at 6% for 2025 compared to 8.9% in 2024, has led to reduced allocations in U.S. equities. A reallocation to UK equities is favored, driven by falling inflation and strong performance in defensive sectors like utilities and healthcare.
Bond Market Outlook: U.S. Treasuries offer lower yield potential, with the 10-year yield falling to 3.98%. High-yield corporate bonds remain attractive, with spreads offering compensation for default risk, and are preferred over investment-grade bonds.
Alessandro
Founder of Macro Mornings
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Disclosure
This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. This material has been prepared for informational purposes only. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.