As we enter the final quarter of the year, our outlook remains optimistic, driven by a favorable short-term economic landscape. The recent market turbulence highlights the importance of a steady investment approach.
We’re maintaining a bold stance, contradicting the widespread expectation of drastic rate cuts. Instead, we believe the current economic conditions are shaped by supply chain limitations rather than a traditional business cycle. Fears of a recession appear overstated, given the ongoing growth in employment, decreasing inflation, and steady economic expansion.
In the fixed-income space, we’re shifting our focus towards high-quality, short-term European credit opportunities, which offer attractive yields amidst relatively stable spreads. We also believe European government bond yields better reflect our expectations for interest rates compared to their U.S. counterparts.
Given the uncertainty surrounding the upcoming U.S. election, geopolitical tensions, and potential policy shifts, we’re adopting a flexible investment strategy. For instance, we’ve reduced our exposure to Japanese equities due to the negative impact of a stronger yen and mixed signals from the Bank of Japan.
By anchoring our investment decisions in the understanding of this new supply-constrained regime, we’re navigating the market volatility with confidence. Despite the shifting narratives – from AI optimism to concerns over big tech spending, and from recession fears to confidence in the U.S. economy’s resilience – we remain committed to our risk-on approach. With inflation cooling, interest rates declining, and growth slowing, we’re maintaining our overweight position in U.S. stocks, exploring opportunities beyond tech within our AI theme, and staying agile in Japan and China’s equity markets.
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