CIO Monthly View with Will Bartleet, CIO and multi-asset portfolio manager at Pacific Asset Management
Central banks around the world continued to ease monetary policy in September, with 12 countries cutting interest rates during the month. At Mario Draghi’s penultimate meeting as President of ECB, the committee voted to cut the deposit rate by 10bps to -0.5% and resume quantitative easing by purchasing EUR 20 billion of bonds per month, every month until the ECB raises rates.
The Federal Reserve also cut rates for the second time this year but gave few clues as to whether there are more interest rate cuts to come. The Federal Reserve Members projections for interest rates in the so called “dot plot” suggest that the Fed has completed its rate cutting cycle, whilst the market is pricing in at least one more cut this year and two more quarter point cuts next year.
Equities moved modestly higher in September but under the surface there was a significant rotation in market leadership over the month. UK and Japanese equity markets led whilst the Nasdaq fell in Sterling terms. “FANG” stocks (Facebook, Amazon, Netflix and Google) the poster children of growth stocks fell over the month as investors shunned highly valued technology stocks. WeWork became the latest problematic Unicorn, replacing its CEO and founder and pulling its IPO. Value stocks, which have been neglected by the market, roared back to life.
Fixed income markets sold off sharply before recouping some of their losses towards the end of the month, with the uncertainty over the future path of US interest rates contributing to the volatility. Government bonds were weak globally, except for gilts whose market danced to its own tune, reflecting the chaotic political situation in the UK.
Finally, alternatives were mixed with global REITS continuing to rally, whilst gold gave back some of its gains of the last few weeks. Diversifying assets were broadly positive with most strategies navigating the current uncertain markets with returns that are uncorrelated to both bond and equity markets.
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