The inflation figures recently published on either side of the Atlantic have reassured the markets. In the eurozone, the consumer price index rose by 2.4% year-on-year in November, the smallest increase since July 2021. In the US, growth in prices stood at 3.1% in November, again confirming the deceleration that has been underway since July 2022.
Signs of a slowdown on the job front
Signs of a slowdown are also more visible in the labour market. Across the Atlantic, the number of unfilled positions has been on a downward trend for several months. At the same time, job creation has somewhat slowed. In the private sector, 145,000 jobs were created on average per month over the last three months, compared with 204,000 in the first half of the year. Temporary employment, which is often regarded as a good leading indicator for total employment, fell in November for the ninth time this year.
Towards an easing of monetary policy
Against this backdrop of significant disinflation and falling leading indicators, particularly in the manufacturing sector, investors are now expecting monetary policy to ease from the second quarter of next year. Over 2024 as a whole, the markets are expecting rate cuts of more than 1,5% in the US and the eurozone. Despite this, a major easing seems difficult to reconcile with the consensus view of a soft landing for the US economy.
Bond yields down
The deceleration in inflation was behind a marked reversal in bond yields in November. After reaching 5% in mid-October, the yield on 10-year US Treasuries fell by around 0.6%, returning to its level of early September. The German 10-year yield followed a similar trajectory, falling back to around 2.2%. This reversal bolstered the performance of the bond portfolio, which has been strengthened several times in recent months within our managed portfolios.
Equity market driven by the rise of artificial intelligence
Turning now to equities, the US market once again posted the best regional performance since the beginning of the year, benefiting from the rise of the Magnificent Seven (Apple, Amazon.com, Alphabet, Meta Platforms, Microsoft, Nvidia and Tesla). Buoyed by the euphoria linked to the rise of artificial intelligence, these seven mega-companies contributed more than 65% of the S&P 500’s performance and now account for more than 25% of the index’s value. It is clearly worth noting that fewer than 30% of companies in the US market outperformed the index over this period. This explains the very clear outperformance – around 15% – of the S&P 500 weighted by market capitalisations compared with the equal-weight S&P, which equally weights the 500 companies.
Opportunities on the table in the coming months
We believe that defensive sectors such as health care and consumer products will provide interesting opportunities over the next few months. Despite robust earnings, many companies in these sectors have been penalised on the stock market in recent quarters by rising bond yields. These high-quality companies should benefit from a more fragile economic environment. Moreover, their valuations appear attractive and include reasonable expectations.