U.S. equities are on track to outperform government and corporate bonds for the remainder of the year, as revealed by the recent Bloomberg Markets Live Pulse survey. A significant 60% of the 499 industry experts surveyed believe that American stocks will yield the highest returns in the upcoming fourth quarter, amidst a backdrop of ongoing interest rate cuts by the Federal Reserve.
This bullish sentiment is further supported by rising enthusiasm for emerging market investments, which 59% of respondents favor over developed markets. As investors position themselves for potential gains, they are increasingly shunning traditional safe havens, such as Treasury securities, the U.S. dollar, and gold.
The optimism surrounding stocks aligns with growing bullish forecasts from Wall Street, especially following a half-point rate cut by the Fed earlier this month. This adjustment comes at a time when China’s stock market is experiencing its most significant rally since 2008, buoyed by substantial economic stimulus efforts from the government.
Yung-Yu Ma, Chief Investment Officer at BMO Wealth Management, articulates that high short-term interest rates have posed the most significant challenge to the U.S. economy. His firm has been leaning into riskier assets and anticipates that, if a market pullback occurs, they will consider increasing their U.S. equity holdings.
The Pulse survey indicates that 59% of respondents expect the Federal Reserve to implement quarter-point cuts in its upcoming meetings in November and December, with an additional 34% predicting even more substantial reductions. These predictions align with swaps traders who are factoring in a total easing of around three-quarters of a point before the year’s end.
Investor confidence in the Fed’s ability to facilitate a soft landing for the economy has risen, enabling the S&P 500 Index to trend upward in September—a month historically known to be challenging for this index. If successful, this would mark the S&P 500’s first positive September performance since 2019.
Lindsay Rosner, Head of Multi-Sector Investing at Goldman Sachs Asset Management, reinforces the optimistic outlook, stating that central banks, including the Fed, possess ample room to implement further cuts. While broader market valuations may appear stretched, these monetary policy adjustments make them more justifiable under current conditions.
When asked about the least favorable trade for the remainder of the year, 36% of respondents shunned buying oil, attributing its poor outlook to concerns over an impending oversupply. A close second was buying Treasuries, chosen by 29% of the experts.
Despite Treasuries trending upward for five consecutive months, uncertainty lingers regarding fixed income investments. The challenge arises from differing opinions on how quickly the Federal Reserve will lower borrowing costs, particularly considering the resilience of the job market. There remains cautious sentiment towards long-term Treasuries due to inflation risks potentially resurfacing as the Fed begins easing.
Interestingly, enthusiasm for the U.S. dollar, typically viewed as a safe asset, appears muted. A striking 80% of those surveyed anticipate that the dollar will either remain stable or decline by more than 1% by year-end, as evidenced by the modest year-to-date increase of less than 1% in the Bloomberg Dollar Spot Index.
This survey, conducted from September 23-27, engaged participants including portfolio managers, economists, and retail investors, all of whom specified their preferences regarding trading strategies. Moving forward, the survey poses a new question concerning the ongoing troubles in commercial real estate debt.
In summary, as the financial landscape evolves, U.S. stocks present potentially fruitful prospects against a backdrop of rate cuts and investor confidence, while traditional safe-haven assets face growing skepticism. With emerging markets gaining traction and investors seeking opportunities within riskier assets, the final quarter of the year promises to be revealing and dynamic for market participants.