Falling interest rates. Cooling inflation. These are just two of the (aptly named) themes in the Fall 2024 edition of the Global Investment Outlook report from RBC Global Asset Management. What should you know as an investor as the new season plays out? Here are some of the key takeaways highlighted by RBC GAM Chief Investment Officer Dan Chornous and Investment Strategist Eric Savoie.
Soft landing projected
Even though there is potential for a mild recession as a result of a deterioration in labour markets, the most likely scenario is for economies to continue to grow. That’s in part because slowing growth and cooling inflation have led central banks to lower interest rates to foster growth over the coming months and quarters.
Inflation concerns easing
In a nutshell, inflation is becoming less of a concern. U.S. headline consumer-price inflation fell to 2.5 per cent in August 2024 from a high of 9.1 per cent in the middle of 2022. The U.S. economy is no longer overheating, wage growth continues to slow and companies are less inclined to raise prices. Still, there are risks, including possible shocks related to the price of oil. Overall, a gradual deceleration in inflation is expected in 2025, closer to the 2 per cent that central bankers target.
U.S. dollar weakening
The U.S. dollar is now well off its 2022 high, and it’s expected to drop even more in the months ahead. The euro is expected to be the best performing developed-market currency versus the U.S. dollar over the next year, while other currencies may also benefit from a weaker U.S. dollar.
Stocks extending gains
Overall, projections are for equities to deliver mid to high single-digit returns over the year ahead, with a focus on segments of the market where valuations are less demanding. Mega-cap technology stocks have benefited from optimism about the productivity improvements that artificial intelligence could bring, but the extreme valuations in these stocks could limit further gains. While the S&P 500 Index sits near the top of its fair-value channel, stocks in Canada, the UK, Europe and emerging markets are all trading below fair value and in some cases at attractive discounts. In the event of a soft landing, appealing opportunities exist in sectors that haven’t fully participated in global stock gains since the start of the year, such as in small caps, international equities and value stocks, where gains have accelerated since July.
Why does this matter to you?
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