Monthly Investment Outlook – March 2024

Author: Stefano Torti, Group Head of Asset Management & Advisory.



Investors were shaken in February by the Fed’s shift in tone regarding the timing of interest rate cuts following several “hot” economic releases. The Fed’s new “wait and see” posture suddenly clashed with Wall Street’s forecasts for multiple rate cuts beginning in the first half of the year. While many sectors of the U.S. economy seem immune to higher interest rates, investors are intently focused on the timing of the Fed’s pivot. With rate cuts apparently off the table for the immediate future, recent market sentiment appears more driven by the blistering rally in Al stocks (particularly Nvidia), than recent pronouncements by the Fed.


Although the equity markets posted solid returns in February, credit markets struggled as a result of concerns over persistent inflation and fewer rate cuts in 2024. In light of interest rates remaining higher for longer, credit managers are experiencing significant inflows from investors hungry for yield.


High yield bond spreads remain tight with defaults below historical levels, while leveraged companies have access to the market to refinance their near-term maturities. However, caution may be warranted over the next several months as U.S. GDP may deteriorate and corporate earnings could miss expectations, while the Fed’s pivot timetable may be pushed out further. The major threat to market performance in 2024 seems less about the Fed, but more about investors becoming complacent in a bullish market.



“ (…) credit markets struggled as a result of concerns over persistent inflation and fewer rate cuts in 2024. In light of interest rates remaining higher for longer, credit managers are experiencing significant inflows from investors hungry for yield.






The consensus EPS growth estimates for 2Q-4Q ’24 are high in the context of sticky cost structures and falling pricing power as fiscal spend crowds out both labor and capital for the average company.


Valuations for government bonds look attractive versus their own history and versus equities, more so after the sell-off in February.


Commodity security boosts strategic restocking demand, is bullish long-cycle critical commodities, but bearish short-cycle commodities.



Our sub-asset class views


      =   +        
EQUITIES       GGGG           New all time highs are set but the market continues to be dominated by a handful of stocks, valuations are getting richer for growth stocks but they remain reasonable for mid caps.
US       GGGG           Strip out the ‘AI boom’ and most US companies returns are less compelling. Earnings season underway should provide more clarity.
UK       GGGG           British stocks are still very cheap and GBP appreciation attractive for EUR, USD investors. Growth revised up, but tepid. Inflation seems getting finally under control.
Eurozone       GGGG          
Economic weakness is visible, however a rate cut could finally sustain a rally in small and mid cap stocks.
Switzerland       GEGE GEGE         Quality, defensive nature of the market can play an important role in a portfolio, but the real catalyst will be CHF weakness.
EM       GGGG           China sentiment has never been so bearish, with the market being considered univestable by some. However valuations are extremely attractive.
Japan       GEGE GEGE        
Valuations are getting now slightly extended but momentum is still there.
FIXED INCOME       GGGG           Front end yields make short-dated investment grade bonds attractive, long end has probably repriced too aggressively; more patience to take additional duration risk.
Sovereign Bonds       GGGG           We prefer the short and medium part of the curve, especially for EU and US govies. Avoid Japanese, neutral UK.
Corporate I.Grade Bonds       GEGE GEGE         Short duration high quality IG yielding 5/6% is appealing as the core of a bond portfolio, but is important to have exposure to also longer dated bonds to reduce
reinvestment risk.
High Yield Bonds     RRRR RRRR           Have enjoyed a good run as the US economy stays resilient, we have recently taken profits and closed our position in light of economic headwinds and rising defaults.
E.M. Bonds       GGGG           We are generally cautious on emerging markets due to fiscal imbalances, but our short duration approach achieves yield at acceptable risk.
We like holdings that are genuinely uncorrelated to the main asset classes.
Precious Metals       GEGE GEGE        
Peaking real rates should help the gold price, and trades in its own way to offer diversification.
Hedge Funds       GEGE GEGE A       We aim to create a blend of alternative strategies that offer different return profiles and risk premia to bonds and stocks.
Oil/Commods       GGGG           Commodities are attractive for the long term, due to the demands of net zero, but oil looks to have peaked in the near term as supply has risen.




      =   +    
CURRENCIES               Recent US economic strength will probably limit the pace of rate cuts and hence be more supportive for the USD.
U.S. Dollar (DXY)       GGGG       Repricing of rate cuts and good economic momentum are supportive for the USD short term.
Sterling (GBP)       GGGG       Economic date has been less bad than expected, GBP should show some stability at least until the elections.
Euro (EUR)     RRRR  RRRR       Economic activity is deteriorating in continental and northern europe, with PPI negative in many countries. ECB has less reasons to be restrictive.
Japanese Yen (JPY)       GEGE GEGE GEGEAA   In the long term, JPY has potential to significantly breakout when and if BOJ loosen curve control. November BOJ meeting could be a turning point.
Swiss Franc (CHF)      RRRR RRRR       CHF looks expensive on all metrics, and inflation is now below the SNB target.
EM       GEGE GEGE    
Fiscal situation has deteriorated in several countries, but real rates are still attractive.