We are in a delicate moment for the stock markets, how do you think all this can end?
This month of October It’s a month a little transition awaiting the result of the American elections. It may be a slightly bearish sideways month, but we hope for a rally at the end of the year in November and December, once the American electoral uncertainty is cleared. We get asked a lot about the result of the American elections, and the truth is that what we believe is better is that there is a more or less clear winner, that it happens to us like four years ago when there were a few days of uncertainty while the who was the winner of the elections.
Wall Street anticipates caution with, predictably, a scenario of high volatility; In Europe, the stock markets are trading with a mixed sign and waiting for what may happen. In this sense, what do you think the central banks can do in their next meetings?
We believe that the central banks what they can and will usually do will be continue lowering interest rates much more than what they have lowered until now. So far we have had two drops of 0.25 in Europe and a drop of 0.5 in the United States and we believe that, looking forward, this has to go further. Decreases are expected for next year in 2025 and for this end of the year also 2024 in both Europe and the United States.
In this environment of lower rates, we are linking to the previous question regarding how we saw the end of the year, lower rates, inflation also falling. It’s a relatively idyllic setting for risk assets and basically things will happen along the way. We have clear geopolitical risks right now, both in the Ukraine for two years, and in Israel for a year just now that it began, therefore with a medium-long term horizon we are optimistic.
With geopolitical tension high, what can investors do?
basically try not to do market timingdon’t try “trade” this type of situation because it is very difficult. Things have always happened and will continue to happen. We had the case of Ukraine two years ago, the conflict in Israel began, which unfortunately continues to this day, and the markets over time seem to be gaining a certain immunity to all this. Actually, when conflicts intensify, volatility skyrockets, but we believe that we have to have a more long-term vision and dispense with more of the short-medium term noise in this sense. We must be more aware, for example, of the business profit margins that, in this sense, the publications of the results are being good and we believe that this is what is important because in the end every recession has been preceded by a decrease in business profit margins and in this case, for the moment, that is not the case.
Do you see opportunities in specific sectors?
We like the consumer sectorhe health sector which had fallen a little behind last year and now has had a pretty good few months and we believe that they are looking forward and it makes sense. We also like, structurally, the technology sector avoiding those niches that are more expensive in terms of valuations. We like the semiconductors and there will also be other sectors that benefit from lower interest rates, as is happening today with the utilities. And in recent months, too, the listed real estate sectorlisted real estate companies, which is normal because they are more cyclical sectors and can benefit from this drop in interest rates. One of the cyclical sectors that we also like is energybeing a little more risky, but we think it is at good prices.
Oil is taking advantage of the current situation, is it time to bet on it or the oil companies?
We think that oil has fallen far behind and that almost everything bad has been put into the price and, especially, into the oil companies. Sometimes it is said that Saudi Arabia will increase its production quota to gain market share, lower prices, etc., but we do not believe that the price of oil will go much lower. We believe that it will probably remain at these levels, They may rise a little and the oil companies should do a little better than what they have done in the last year when they have not performed well on the stock market.
What are your perspectives for the end of the year and how do you see the beginning of 2025?
Looking to the end of the year, passing this month of October in which we are in transition, We are reasonably constructive in risk assets once the American elections are over, and the best thing that can happen in the end is that they pass, because they always add a degree of uncertainty. In this case, furthermore, we have the situation, surely for the first time in history, that the two candidates have governed, one as president and the other as vice president, therefore more or less the American voter knows what to expect and the investors also. We already saw the measures that Trump applied four years ago and we have also seen in this Democratic mandate how it is working. There is something that the two candidates agree on and that is that neither of them talks, basically, about deficit reduction, which is a very relevant issue and something quite worrying due to the volume of accumulated debt that the United States has.
We hope for a good end to the year. I don’t know if it will be a rally similar to last year’s in November and December, but I do know that we are reasonably optimistic with interest rates falling, with inflation also falling, latest data also confirming the slowdown in inflation. It is true that it is accompanied by an economic slowdown, but business margins remain at reasonably good levels and, therefore, this makes the central scenario a soft landing and rules out a recession, or at least, that the probabilities of a recession be low. This positioning is what we have for this last quarter of the year and that in principle we also manage for the start of next year.