Investment Themes Continued:
4 - Consumer confidence serves as a leading economic indicator derived from household sentiment surveys. While inherently subjective, these metrics carry significant weight as consumer psychology directly influences spending patterns and, by extension, economic growth. Overall, consumer confidence remains at a solid level. It isn't extremely high yet isn't extremely low. North American governments provided consumers with ample spending power through fiscal stimulus measures, which helped support consumer confidence over the last couple of years. Since then, household pent-up savings have dwindled, and this may be waying on the minds of households. Similar to manufacturing and labor market activity, consumer confidence isn't at worrisome levels, but the downward trend is worth
keeping an eye on.
5 - Inflation in many regions, including the U.S., Canada and the Eurozone, continues to trend closer to their 2% targets. Canada and the Eurozone have shown more comfort that their inflation measures are on the right track. The U.S. Federal Reserve was wary through the first half of the year but gained more confidence in Q3 and now feels more comfortable that inflation will reach their target in due course. As a result, they have shifted their focus to supporting labor market stability, due to some of the softness that has been observed in the workforce.
6 - In Q2, Switzerland, Sweden, Canada and the European Central bank all reduced their policy rate, signaling the start of a global rate-cutting cycle. Throughout the Q3, the trend of global central bank rate cuts continued. Canada has now cut four times, with the overnight interest rate peaking at 5.0%, it has now been reduced to 3.75%. The U.S. Federal reserve finally joined the rate cutting party in the third quarter. Despite these moves, the U.S. Federal Reserve remains hesitant to cut rates, fearing a resurgence of inflation. By the end of 2025, the Bank of Canada rate and U.S. Federal Reserve rate are forecasted to reach 2.75% and 3.25% respectively. This further easing of financial conditions should be supportive for economic growth and stability.
7- In contrast to the tech sector’s leadership in the first half of the year, momentum stalled in Q3. Investors shifted their focus toward companies poised to benefit from easing financial conditions, with global real estate, global value sectors, global small caps, and emerging markets being the clear beneficiaries. The global tech sector’s underperformance shows through in the global growth sector, lagging with 3.5% performance in Q3. Although the tech sector slumped in Q3, the broader market participation is a welcome development.
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