investors brace for rate cuts as economic data shapes market outlook

Investors are increasingly interested in taking advantage of market volatility, particularly in the field of artificial intelligence (AI). They can use structured strategies to build positions at more attractive prices.

Investment Preferences

In the technology sector, there is a strong preference for AI-linked semiconductors, major US tech companies, and select leaders in the Chinese internet space.

Capital Preservation Strategies

To mitigate the impact of market fluctuations, it is recommended to employ capital preservation strategies to protect existing investments.

Potential Earnings Growth

Additionally, there is potential for earnings growth in various sectors of the US market, including technology, financials, and utilities.

Reducing Exposure to USD

The Federal Reserve has more flexibility to cut interest rates compared to other central banks, which is leading to expectations of a further weakening of the US dollar. Investors are advised to reduce their exposure to USD through hedging assets, diversifying internationally, or using options.

Consideration for Borrowers

The Swiss franc (CHF) is expected to strengthen, making it a consideration for those who have borrowed in francs.

Rise in Gold Demand

Gold is also expected to rise due to increased demand from central banks and investors, as well as lower interest rates and a declining dollar.

China's Economic Data

This week, attention is focused on China as key economic data will provide a clearer picture of the country's growth challenges. Investors are keen to understand the implications of these indicators on China's economic trajectory.

Rate Cuts in Europe

In Europe, the European Central Bank (ECB) is expected to implement further rate cuts at its upcoming meetings due to recent soft economic data. Analysts predict that this trend may continue until mid-next year.

Monitoring US Consumer Data

In the United States, consumer data is being closely monitored to gauge the strength of the US economy. Retail sales data for September is particularly awaited, with forecasts indicating a solid increase.

Reassessment of Inflation Data

Recent inflation data from the US has led to a reassessment of the likelihood of a 50-basis-point cut by the Federal Reserve. However, it is important to recognize that a single inflation print does not signal the end of the global rate-cutting cycle. Price pressures are generally subsiding, and there are positive developments as well.

Adjusting Investment Strategies

As global interest rates are expected to decline, investors are encouraged to adjust their strategies. Diversified income sources, such as bond ladders, medium-duration investment-grade bonds, and equity income strategies, can help sustain portfolio income in a lower-rate environment.

Third-Quarter Earnings Season

The upcoming third-quarter earnings season is expected to yield S&P 500 earnings per share growth of 5-7%, which aligns with a broader forecast of 11% growth for the full year of 2024. The outlook for large-cap corporate profit growth remains solid, supported by a favorable macroeconomic backdrop. Analysts maintain a price target of 6,200 for the S&P 500 by June 2025, reflecting confidence in the resilience of the US economy and the ongoing opportunities within the AI value chain.

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