S&P 500 at record highs... a great entry point!
Jerome Powell and his colleagues at the Federal Reserve (Fed) made a clear statement to financial markets last week by cutting U.S. interest rates by 50 basis points - a move that was not fully anticipated by investors. This decision first signals that the Fed views inflation as a resolved issue, and the central bank’s focus is now on supporting the economy and addressing the deteriorating labor market. The magnitude of this monetary easing is also significant. The Fed is acknowledging that it acted late and is now attempting to make up for lost time.
Moreover, the Fed’s projections for further rate cuts toward the end of this year and into 2025 are more aggressive than expected, demonstrating the committee's determination to avoid a U.S. recession. Given this backdrop, it is hard to imagine a more favorable environment for risk assets in the U.S. Yes, leading economic indicators are pointing toward a worsening outlook, and unemployment is on the rise. However, the Fed’s flexibility is such that a "soft landing" remains the most likely scenario, and this is our base case for the U.S. economy in 2025. If the 100 basis points of rate cuts planned for next year prove insufficient, an accelerated pace of monetary easing will be easily implemented.
It is also worth noting that, in the absence of a recession, periods of monetary policy easing have historically led to significant gains in risk assets. This action by the Fed, which mirrors decisions from other major central banks, should reassure investors and support continued gains in equity markets. Particularly since sentiment indicators show no signs of investor euphoria.
We therefore anticipate another phase of growth for U.S. equities in the final quarter of the year and are increasing our exposure to this asset. We approach the last quarter constructively, as it has historically been a favorable period for U.S. stock markets.
France: a brief political respite
More than two months after the snap legislative elections that resulted in no clear majority, Michel Barnier's new government is making its political debut this Monday. It goes without saying that the stability of this administration remains fragile, as its first task will be to draft the 2025 budget, which will require a solid fiscal plan. To meet the requirements of the European Commission's program, a fiscal adjustment of more than 2% of GDP is necessary. Caught between a left-wing faction ready to file a motion of no confidence and the need to secure assurances from the National Rally, whose support is not guaranteed, this will be a particularly delicate exercise. To achieve this, a tax increase seems inevitable. Higher taxes on large fortunes and multinational corporations are already under consideration. Given these challenges, we maintain a cautious approach to the French market, which is likely to continue suffering from ongoing political uncertainty.
This week’s figure : 2,631$/once
Gold has reached a new all-time high, supported by the Federal Reserve's interest rate cuts and central bank purchases. Its momentum remains strong, and market sentiment is not yet overheated, with only a modest return of investment flows.
Author
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Daniel Varela holds a degree in business administration with a specialisation in finance from the University of Geneva and began his career in 1989 as a fixed income manager. He joined Banque Piguet & Cie in 1999 as head of institutional asset management and with responsibility for bond analysis and management. In 2011, he became head of the investment strategy and Piguet Galland's investment department. In 2012, he joined Piguet Galland's Executive Committee as CIO.
