The global outlook will be shaped largely by fiscal and monetary choices, the intensity of geoeconomic fragmentation forces, and the ability of governments to implement long-overdue structural reforms. Notable revisions have taken place at the International Monetary Fund, with upgrades to the forecast for the United States offsetting downgrades to those for other advanced economies, including the largest European countries. In emerging market and developing economies, disruptions to production and shipping of commodities (especially oil) conflicts, civil unrest, and extreme weather events have led to downward revisions.1 In October we maintained the FGAM U.S. twelve-month forward outlook to reflect our view for Growth (U.S. Real GDP growth greater than 2.5%) over the next twelve- month period, in response to the strong U.S. annualized 3.0% growth.
The Chinese economy expanded 4.6% year over year in Q3 of 2024, amid persistent property weakness, shaky domestic demand, deflation risks, and trade frictions with the West. China’s trade surplus widened to USD 81.71 billion in September 2024 from USD 75.5 billion in the same period a year earlier.2 Annual inflation in the Euro Area was revised lower to 1.7% in September 2024. Inflation is now at April 2021 lows, and below the ECB target of 2%.3 Unemployment in the Euro Area remained unchanged at 6.4% in August.4
The U.S. economy grew at an annualized rate of 3% in the second quarter of 2024.5 The annual inflation rate in the U.S. slowed for a sixth consecutive month to 2.4% in September, accelerating for food (2.3% vs 2.1%) and transportation (8.5% vs 7.9%).6 The unemployment rate in the United States fell to 4.1% in September.7 The trade deficit in the U.S. narrowed to $70.4 billion in August, the lowest in five months. Exports increased 2% while imports dropped 0.9%. During the month of September, the deficit narrowed with China (to $27.9 billion from $30.1 billion) and Canada (to $3.1 billion from $8.1 billion).8 The Bank of Canada cut its key interest rate by 50 basis points to 3.75% in its October 2024 decision, increasing the pace of rate cuts following three 25 basis points slashes.9 Headline price growth fell to 1.6% in September, below the target of 2% for the first time in three years.10 The bank noted that consumption slowed on a per capita basis and the labor market continued to soften, as the unemployment rate rose to 6.5% for the first time in over two years.11 Canada posted a trade deficit of CAD 1.10 billion in August, driven by a 1.0% decline in exports to CAD 64.3 billion. Shipments of energy products slumped by 3.0% in August, driven primarily by a 4.1% drop in crude oil exports.12
Optimism surrounding a U.S. soft landing, encouraging inflation results, and recent Fed rate cuts contributed to rising U.S. markets in Q3. The S&P 500 finished the quarter up 5.9% while the S&P mid and small cap were up 6.9% and 10.1% respectively. Canadian equities finished the quarter with the S&P/TSX Composite up 10.5%. The S&P Europe 350 recovered most of the losses suffered in the first week of September to close the month down just 0.4%. Asian equities had a strong rally in September, as China’s central bank unveiled the most aggressive stimulus package since the pandemic to boost the country’s weakening economy.
In October we removed exposure across all models to U.S. Small Cap equities and added the allocation to U.S. large Cap equities. This reflects our expectation of a slower U.S. recovery. We continue to maintain short duration U.S. fixed income exposure as we are in early growth. Gold is held across all models as a long-term strategic asset as it will continue to benefit our portfolio models in the early stages of Growth. Central bank holdings of gold reserves remain strong as the primary incentive is investing for security over returns. The metal usually does poorly when real yields on safe government bonds are high. Since the end of 2021, the correlation has collapsed. Gold has climbed in price even as yields on ten-year inflation-protected American Treasuries rose from minus 1% to around 1.8%.
Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.
Deborah Frame, President and CIO
Drew Millard, Portfolio Manager
1 International Monetary Fund. World Economic Outlook. October 2024.
2 Trading Economics. China GDP. October 14, 2024.
3 Trading Economics. Europe Inflation. October 17, 2024.
4 Trading Economics. Europe Unemployment. October 2, 2024.
5 Trading Economics. U.S. GDP. September 26, 2024.
6 Trading Economics. U.S. Inflation. October 10, 2024.
7 Trading Economics. U.S. Unemployment. October 4, 2024.
8 Trading Economics. U.S. Trade. October 8, 2024.
9 Trading Economics. Canada Bank Rate. October 23, 2024.
10 Trading Economics. Canada Inflation. October 15, 2024.
11 Trading Economics. Canada Unemployment. October 11, 2024.
12 Trading Economics. Canada Trade. October 8, 2024.
Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. September 30, 2024. Index performance is based on total returns and expressed in the local currency of the index.
