Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Saxo client pulse aligned with general market uncertainty
Søren Otto Simonsen
Senior Investment Editor
Asking our clients how they expect financial markets to fare in Q2 is a good sign of the general adversity observed in markets this year. The year began with discussions of rate cuts and a potential recession that has not yet come true, making 2024 difficult to predict.
“Investors, including Saxo clients, came positively into 2024 after a strong 2023 in which a recession was avoided and great returns were delivered in equities. This position has been rewarded so far in 2024 despite unusual volatility in expectations around central bank policy rates and inflation,” says Peter Garnry, head of SaxoStrats.
US will outperform; Europe to disappoint
Asking our clients how they think the major US S&P 500 index will perform, just above half believe it’ll increase, while almost three out of ten believe it’ll decrease. This hints that a rather large share of retail investors is worried that the good times will not continue and given that US equity valuations are back to dot-com bubble levels we share some of this concern with our clients. However, so far the Q1 earnings season has supported US equities and put the concerns aside.
Half of the respondents see the North American region outperform the other financial regions, while 12% believe it’ll be the worst performing, underlining the little collective conviction. Four out of ten believe Europe will be the worst performing region.
The regional expectations reflect herd mentality and that retail investors are buying into momentum. There is nothing wrong with this as momentum historically has proven to be a good risk premium to earn for investors, but it also makes Saxo clients sensitive to a changing world, and especially if the American exceptionalism ends. In our Q2 Outlook, we moved US equities from positive to neutral because of equity valuation concerns and moved European equities tactically to positive. It is clear we have not convinced clients yet to adopt a more positive view on Europe which is still facing a brutal war on its continent.
Central bank policy will be the deciding factor
The reason for the collective doubt about what will happen on financial markets in this quarter may be found in our clients’ answers to “Which [macro-economic events]] do you think will affect your investment strategy in the coming quarter. Here central bank policy seems to be most important, while both geopolitical tensions, the US election, and recession scares play a role for at least one out of four respondents.
“With interest rate cuts continue to be postponed, geopolitical tensions still high, and the US election gets closer, there is a lot of room for increased volatility in financial markets that merits that clients review whether their portfolios are set up for a turbulent quarter and beyond,” says Garnry.
About the survey:
The purpose of the Client Sentiment Survey was to gain insights into the expectations of Saxo’s clients for the upcoming quarter.The survey was distributed to Saxo clients between 12/03/2024-02/04/2024. The survey consisted of 185 respondents.
The survey was executed in English and sent to potential respondents globally who have selected English as their preferred communications language.
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