With the U.S. Federal Reserve (Fed) now cutting rates, investors must decide whether the market will trade “rates relief” or “slowdown uncertainty.” The Asset Allocation Committee (AAC) maintains its soft-landing outlook, which suggests a moderate rate-cutting cycle that gives rate relief to the economy’s “have-nots”—lower-income consumers and smaller companies—more than its “haves.” Renewed stimulus for the sharply slowing Chinese economy has improved the outlook for non-U.S. markets and commodities, but we need to see its full impact to lift our views above target.
UNEMPLOYMENT FOLLOWED RATES UP, WITH A LAG—WILL RATE CUTS STEM ITS RISE?
Source: FactSet. Data as of October 1, 2024. Nothing herein constitutes a prediction or projection of future events or future market behavior. Historical trends do not imply, forecast or guarantee future results. Due to a variety of factors, actual events or market behavior may differ significantly from any views expressed or any historical results. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future results.
Equity
- The AAC has retained its at-target overall view on equities, and its overweight view on higher quality U.S. small and medium-sized companies.
- We anticipate further broadening of U.S. equity-market performance now that rate cutting is underway, but larger companies are both fully valued and less sensitive to rate changes.
- Renewed stimulus from China has improved the outlook for non-U.S. markets, but we still think its structural challenges will continue to weigh on the global economy; we remain at target in our view on Europe; and while we remain constructive on Japan on a secular horizon, given continuing evolution of corporate governance, we move from an overweight to an at-target view as yen strengthening becomes a potential headwind.
Fixed Income
- The AAC downgraded its view on investment grade bonds to at-target, given full valuations.
- We continue to favor the two- to seven-year part of the curve; our soft-landing outlook and debt sustainability concerns make us cautious on longer-dated bonds, even as policy rates are cut.
- We have become more positive on emerging markets debt given attractive yields amid the global rate-cutting cycle.
Real and Alternative Assets
- The AAC downgraded its view on commodities from overweight to at-target, while upgrading its view on real estate from at-target to overweight.
- The AAC continues to view commodities as a useful hedge against potential inflation and geopolitical shocks, but slowing global demand prevents us from maintaining our overweight view.
- We remain cautious on core real estate, but this is offset by the renewed tailwind of declining rates, and what we see as abundant market-dislocation opportunities in the value-add and opportunistic sectors, and particularly in real estate secondaries.
- We maintain our longstanding view that outsized rewards are available in private equity secondaries and co-investments, but primary private equity buyouts are also beginning to look more attractive against a backdrop of declining rates.
Market Views: Based on 12-Month Outlook for Each Asset Class
As of 4Q 2024. Views shown reflect near-term tactical asset allocation views and are based on a hypothetical reference portfolio. Views on private market assets reflect the Asset Allocation Committee’s views on the future return potential of new cash commitments, not the future return potential of existing investments. Nothing herein constitutes a recommendation, investment advice or a suggestion to engage in or refrain from any investment-related course of action. See disclosures at the end of this publication, which include additional information regarding the Asset Allocation Committee and the views expressed.
About the Asset Allocation Committee
Neuberger Berman’s Asset Allocation Committee meets every quarter to poll its members on their outlook for the next 12 months on each of the asset classes noted and, through debate and discussion, to refine our market outlook. The Committee has an average of 30 years’ experience and covers a wide range of our market and research capabilities.