The second half of this year will be marked by a change in monetary policy worldwide, with the start in rate cuts in the world’s main economies.
Wall Street is heading into a historic year with large companies driving the country’s main indices.
The slowdown in inflation, the increase in corporate results and the strength of employment in the US allow us to be positive for the remainder of the year.
Politics will be another key point, while in Europe we still have doubts about the consequences of the election result in France, in the US Donald Trump is the clear favorite to return to the White House.
Key Dates
- September 12, 204: ECB meeting
- September 18, 2024: Fed Meeting
- August 19 to 22, 2024: Democratic convention in the US
- November 5, 2024: Elections in the US
Stock Markets
Most of the main world stock markets are in the zone of historical highs, accumulating increases of more than 20% since the lows of last October.
The global economy has held up surprisingly well to high interest rates. Europe’s economic improvement has been one of the main surprises of the year, although we believe that in this case it is a mere mirage. The two main economies in the region, Germany and France, offer doubts at an economic level, which in the case of the latter adds to the political instability of its latest electoral results.
The rest of the countries in the euro zone are not in a privileged position either, while the increase in debt is a common constant. These circumstances, added to the slowdown in inflation, seem to us sufficient reasons for the ECB to decide to make at least two rate cuts by the end of the year.
On Wall Street we see clear differences. The reported data show that the Fed is getting closer to meeting its main objectives. On the one hand, employment has begun to show some signs of normalization, with wages growing at their lowest rate since early 2022, which puts less pressure on business results, favoring a “soft landing” scenario.
In addition, inflation continues its deceleration process and is gradually moving towards the 2% objective, something that will allow us to have at least one rate cut before the end of the year.
Large cap stocks have led the current rises and it is expected that, as their growth moderates and interest rate cuts begin, smaller stocks are expected to take over. The S&P500 currently continues to appear as one of the best alternatives.
It should be noted in favor of the index that economic growth continues, and that the valuations, although high, are lower than during other economic crises. Furthermore, we have already been able to see how the market could be affected by a Trump victory since, after the electoral debate, the dollar and the indices have reacted upward.
Thematics
In this section we select the following areas:
- Semiconductors
- Health care
- Real estate
- Gold
Semiconductors
One of the sectors that is bearing the greatest weight on the index is semiconductors, an industry that is expected to grow at a compound annual rate of more than 10% until 2030.
So far, we have seen the beginning of chatbots, cloud computing or the Internet of Things, but this is spreading to other markets such as industrial automation, healthcare or electric vehicles. This business has very high barriers to entry, so the market will continue to be distributed among a few participants, who generate very high cash flows, allowing them to continue investing in greater growth.
Unlike the previous dotcom crisis, these companies are justifying their valuations with their profit growth on a quarterly basis.
Healthcare
We believe technology will also cause advances in other sectors, such as health. The sector invests in Research and Development more than any other industry, exceeding $250 billion last year. An example of this are treatments against obesity and diabetes, related to more than 200 chronic diseases, so if they meet their expectations, their sales could multiply by 15 over the next five years.
Technological advances and cost reduction are driving its revenues and it is expected that for this quarter its results will grow at a rate of more than 20%. Furthermore, its defensive nature seems to us to be an important catalyst for the sector in the face of a possible increase in volatility at a global level.
European real estate
In Europe, we expect several rate cuts, an idyllic scenario for real estate. By reducing financing costs, profits will increase, which translates into more cash to invest in new assets, and increase the dividend payment, a strategy that could benefit from the fall in bond yields, and which is more defensive.
It also helps boost economic activity, which drives demand for real estate space. Although the emergence of remote work poses a threat, the hybrid model predominates in Europe.
The European REIT market is trading at an average discount to the net value of its assets of more than 30%; they currently have occupancy rates in their properties above 90%. Most rental contracts are long-term with large companies and linked to inflation.
Gold
Finally, we consider it interesting to be able to diversify our investment portfolios, and we believe that gold is ready to start a new bullish rally.
Over the past few years, it has been driven by fears of recession, geopolitical conflicts and rising inflation. Recently, it has been the purchases of central banks in their desire to diversify their dollar reserves and small Chinese investors wary of the real estate sector and the stock market, which have led it to be quoted at historical highs.
In addition to providing a reserve of value against the continuous depreciation of traditional currencies, it is a source of liquidity at times when volatility increases. It is also expected to benefit from the rate cut, as unlike bonds, gold does not offer a fixed return, so as bond yields fall, more investors will return to buying gold.
