Cutting through the noise

Cutting through the noise

Simplifying the investment landscape in complex markets
When thinking about an investment strategy, it’s important to consider its time horizon. It’s human nature to notice short-term ups and downs more than long-term, gradual trends. But we, as investors, must take both into account when building our strategy. This is especially true when the news is dominated by geopolitical tensions, elections and significant government actions – as will likely be the case in 2024.

And so, to cut through the noise, we keep three investment time horizons in mind: the immediate (a few months, which investors reassess on a continued basis), the cyclical (six to 12 months, also reassessed continuously) and the structural (many years).
Daniele Antonucci

Daniele Antonucci

Daniele Antonucci is a managing director, co-head of investment and chief investment officer at Quintet Private Bank. Based in London, he’s a voting member of the investment committee. As head of research, Daniele oversees the investment strategy feeding into portfolios. He chairs the network of chief strategists, which communicates the house view on the economy and financial markets to clients and the media.

Prior to joining Quintet in 2020 as chief economist and macro strategist, Daniele served as chief euro area economist at Morgan Stanley. Earlier, he worked at Capital Economics, Merrill Lynch, Moody’s KMV and the Confederation of Italian Industry. Daniele holds a master’s degree in economics from Duke University and graduated from the Sapienza University of Rome. He’s an ECB Shadow Council member.

The immediate horizon

The immediate horizon is largely impacted by what’s happening in the news – elections, wars, government action – and causes the short-term ups and downs in markets. It’s important to remember, though, that the immediate horizon is not just a few months from today, but the few months after events that are continuously happening.

graph 1

For illustrative purposes only.

The cyclical horizon

The cyclical horizon tends to capture the impact of past and expectation of future government and central bank policy decisions. These include things such as the effect of interest rate changes on inflation and growth, or taxation and public spending. This is the ideal horizon to tactically tilt portfolios one direction or another.

graph 2

For illustrative purposes only.

The structural horizon

The structural horizon covers the time it takes for markets to adjust to long-term trends such as sustainability and energy transition, demographic changes including an ageing population, technological innovations and so on. Markets can adjust to these trends quickly, as we’ve seen with ChatGPT and AI, or China’s demographic inflection point, in 2023. Typically, though, it takes many years. This time horizon is often ideal for thematic investing, which plays out over extended periods.

graph 3

For illustrative purposes only.

Our investment strategy is geared towards the medium-to-long term, while also capturing near-term opportunities by tilting portfolios in line with our high-conviction views.
What does this mean in practice?
Adjusting to a fragmented world
Key elections in 2024 (US, Taiwan, India, Indonesia, UK, Belgium) could cause short-term market volatility. What these votes have in common is active policies. We’re moving from a world dominated by central banks’ monetary policy to one where Big Government is a key factor. Fiscal, industrial and even foreign policies will likely play bigger roles in differentiating geographies and asset classes.

Therefore, to protect from uncertainty, we are staying globally diversified and introducing new asset classes. These are designed to increase portfolio diversification and protect from geopolitical uncertainty that could lead to yet another inflation spike. We’re also increasing our exposure to US Treasuries, the largest and most liquid high-quality bonds market in the world. And, with interest rate increases finally behind us and possibly some cuts ahead, it’s one that’s attractively priced.
Recalibrating post interest rate peak
In 2024, we expect a weakening global economy with slower growth and moderating inflation (but still above central bank targets). The US, Eurozone and UK are all likely to decelerate further and we see a high probability of a shallow recession, though this seems more likely in the Eurozone than in the US, with the UK in between. However, as the impact of past rate increases feeds into the economy and further slows inflation, rate cuts in the Western world could come from the summer, and boost growth. We could see a Western recovery in the second half of the year. China’s recovery, however, will continue to be weak, but an outright recession seems unlikely given ongoing stimulus, albeit modest, from the Chinese Government and the People’s Bank of China.

The key question isn’t whether a recession will happen, but how much it’s expected by markets and, in turn, whether it’s reflected in asset prices. If an asset is attractively priced, then there’s an opportunity, as we partly see with Eurozone equities and high-quality government bonds. If an asset is overpriced based on the risk taken, it’s best to avoid, as is currently the case with riskier credit markets. Given that a faster slowdown and/or a deeper recession compared to market expectations is more likely than a boom in economic growth, we’re also staying invested in US and European low-volatility stocks. These tend to outperform the broader market during a slowdown.
Capturing multiple megatrends
We look at themes across the three broad categories of productivity (cloud computing, processing power, robotics and automation), planet (clean energy, water and waste, electric vehicles), and people (future health, the aspiration economy). Many of these trends are positive for markets and tend to encourage growth. This view informs our long-term outlook and is why we think US equities – a hub of innovation – is a compelling asset class over the longer term. Many of our themes also suggest that demand for metals useful in the technological and sustainable transitions is likely to stay sustained.
How the three investment horizons come together

graph 4

For illustrative purposes only.

Moderating our defensive bias
Overall, we still own more high-quality bonds than normal, less credit and fewer equities. Markets appear to expect the moderate global slowdown we project, with a shallow recession in parts of the develop world. We don’t forecast any further interest rate increase and, in the second half of 2024, expect some rate cuts. So, we’re slightly increasing our equity allocation, as no more rate increases removes a major headwind for equity markets.

Tactical Positioning

graph 4

N = neutral weighting of asset class vs strategic (long-term) asset allocation.

Economic Outlook



US | Feeling the gravity pull

The US economy has been defying gravity for some time, with very strong growth and high inflation. This is now changing, and we think both trends will likely come back to Earth. With high interest rates feeding through and supply chains working better, inflation has steadily fallen over the past year, though it remains fairly elevated. But the economy has remained surprisingly resilient. Having said that, the US labour market has started to weaken, and manufacturing activity has contracted for a year. Services activity is only growing marginally. This is important because services have kept US growth ahead of the other major regions. US services growth combined with some long-term structural shifts in the economy (such as supply-chain fragmentation) means we’re unlikely to see the US Federal Reserve (Fed) reach its 2% inflation target next year. More likely is that we’ll see a stabilisation between 2-3%, a much lower level than the 9-10% we experienced a year ago.

As with the other major Western central banks, the Fed is at peak rates. To keep downward pressure on inflation, we believe it will keep rates elevated over the coming months before cutting from mid-2024 to support growth.

As a result, some weakness is on the cards for the dollar once the Fed starts cutting rates, combined with some other fundamental factors such as an overvalued currency, and fiscal and trade deficits. However, as other central banks, too, will likely cut rates, any downside for the dollar could be limited.

The campaign trail for the US election in November 2024 will start in force in the early part of the year, and we expect this could make some noise in markets. Voters often put the economy at the top of their list of issues, so we expect this to be a hotly debated topic amongst the candidates. While this could cause some short-term market implications, it’s important to see it as such – short-term noise that will likely dissipate. While candidates may promise tax cuts (as Trump enacted at the start of his Presidency, leading to a strong equity rally), the US debt ceiling may have other ideas.

Central Bank Policy Rates (%)

graph 5

Source: In-house research, Fed, BoE, ECB.

Eurozone | Mild recession before recovery

The Eurozone is currently in a mild technical recession. Manufacturing activity has been contracting since the start of 2023, while services have started decelerating more visibly in recent months. However, inflation has continued to fall further than expected lately, leading to speculation on when the European Central Bank (ECB) could start cutting rates. Our view is that the ECB will hold rates during the first part of 2024, before it begins lowering them to stimulate growth from mid-year.

As such, a shallow recovery seems likely for the second half of 2024. Until then, the tug of war between the euro and dollar will continue. Once the Fed starts to cut rates, we could see the euro gain back some ground.

Purchasing Managers' Indices (>50 = expansion; <50 = recession)

graph 6

Source: In-house research, Refinitiv.

UK | Playing catch-up on inflation

The rapid rise in interest rates has fuelled volatility in UK financial markets, and there are concerns that the British economy could soon stall or enter a mild recession. This is something the UK has been flirting with for most of 2023, with quarterly growth near zero throughout the year. Services activity had remained fairly resilient in the first half of 2023, which has counterbalanced the weak manufacturing activity. However, now that services activity is slowing, a recession is on the cards, despite the efforts of the Autumn Budget to mitigate that risk.

Higher rates are putting downward pressure on the economy and inflation, which has been much stickier compared to the US and Eurozone, is now falling more decisively. While it remains above the 2% target, the pressure to grow the economy will likely outweigh the pressure to hit that target. As such, we believe the Bank of England (BoE) will keep rates as they are for now before cutting them from mid-2024 in an effort to revive growth. A shallow summer recovery may be on the horizon.

Unlike the US Presidential Election, we’re all still in the dark on the exact date of the UK General Election. Some commentators suggest that the recent tax cuts announced in the Autumn Budget point to a spring/summer election but, for now, only time will tell. Should UK Prime Minister, Rishi Sunak, bring the date forward (the official deadline isn’t until January 2025), expect some short-term market noise as economic growth will be a key battleground between parties. But it’s important to remember that campaign promises do not always come to fruition. So, while elections can move markets in the short term, we remain mindful of the risks and think in terms of scenarios, given the unpredictable nature of these events. 

Inflation Rate (%Y)

graph 7

Source: In-house research, Refinitiv.

China | A question of stimulus

The pick-up of the Chinese economy post-Covid didn’t materialise to the extent markets envisaged initially. Instead, China is suffering from a real estate crisis, low consumer confidence and lower-than-target inflation. Given the headwinds China is facing domestically and abroad, we’re forecasting that the pace of Chinese growth in the years ahead will fall below the average of the past decade. To turn things around, more stimulus is needed, and expected. The key question is how decisive it’s going to be. We think not too much.

Chinese policy rates (there are several) are in the 2-4% range, so the People’s Bank of China certainly has room for rate cuts, particularly as inflation is below target. Boosting domestic demand, and in turn economic growth, is vital – especially because global export demand remains depressed.

The waning export demand is unlikely to just be a short-term effect from Covid. More countries and economic blocs will start focusing on local control in key sectors and technologies, reducing their reliance on Chinese manufacturing. Foreign direct investment has continued to fall and is now at its lowest point since the early 1990s. Couple this with an ageing population and a shrinking workforce and China has to think about more than just cutting rates to turn this long-term trend around.

Another factor worth keeping in mind is the election in Taiwan in January, which adds another layer of uncertainty as the run looks quite open. The current ruling party – the Democratic Progressive Party (DPP) – prefers to strengthen Taiwanese identity, while the opposition parties aim to renew talks with China. With two conflicts ongoing, heightened tensions between China and Taiwan (and potentially the US) could increase market volatility. However, we have also seen how some of the geopolitical events had limited or no impact on markets, and so we think that, rather than timing and attempting to predict such outcomes, portfolio diversification (and a good dose of humility and open-mindedness) are the best defences.

China Net Foreign Direct Investments as a % of GDP

graph 8

Source: World Bank.

Japan | All eyes on the BoJ

While the West has been raising rates to pre-Global Financial Crisis levels to battle spiralling inflation, Japan likely welcomed the post-Covid price pressures after a period of deflation during the pandemic (and several bouts before that). The Bank of Japan (BoJ) has kept interest rates in negative territory all year (where they have been since 2016) despite inflation continuing to be above the 2% target.

Now the market expects the BoJ to finally normalise rates and bring them back into positive territory at some point in 2024, most likely at zero or just above zero. However, before it increases rates, we believe the BoJ will remove its control of the yield curve, a policy it has employed to keep the 10-year bond yield below 1%. The BoJ could be out of sync as it may raise interest rates at a time other central banks are cutting them, which create hurdles for the Japanese economy. In turn, this could strengthen the yen, which has typically negatively affected Japanese earnings growth.

Asset Class Outlook & Positioning
Moderating our slight underweight
Rising interest rates was the biggest headwind to equities in 2022-23. We don’t forecast any further rate increases in the West, and even pencil in cuts from mid-2024, so we believe that headwind has passed, leading us to slightly increase our allocation to equities.

In this light, we are increasing our exposure to European equities excluding the UK (though we continue to run a moderately reduced exposure) as prices now reflect the recession that we expect in the region. Another way of saying this is that this market looks attractively valued. We’re also buying developed Pacific equities (excluding Japan). These should benefit from the growth dynamics associated with emerging market economies and Asia, which, as an integrated bloc, is somewhat less connected to the rest of the world and driven more by its own dynamics. This also allows us to broaden our equity diversification, a key component of our 2024 Investment Outlook given the noise we’re likely to see in markets across the year with elections and geopolitics.

Because of this noise and potential volatility spikes, we’re sticking with our positions in low-volatility equities in the US and Europe, which give a higher weight to defensive sectors such as health care, consumer staples and utilities. These are likely to be less sensitive to the events mentioned above and have shown to outperform the broader market during times of volatility.

However, even as rates peak, equities can still face headwinds from slowing growth. So, despite the slight increase, we still hold fewer equities overall relative to our long-term asset allocation given the return one can get from high-quality government bonds.
Moderating our slight underweight
Attractive as interest rates peak and then fall
We spoke in our 2023 Investment Outlook of bonds finally returning to portfolios as a source of diversification and return after years of low yields. That hasn’t changed. In fact, now that interest rates have peaked, they are even more attractive. Indeed, government bonds yields tend to fall around peak rates (just before or at). This will push the prices of today’s higher yielding bonds up.

Therefore, we are keeping our current exposure to longer-dated high-quality government bonds in the Eurozone and the UK. These tend to outperform shorter-dated bonds after the peak in interest rates in a scenario of slower growth and inflation. We are also buying more US Treasuries. These not only provide a good return for very low risk, but they also help protect against any sharp downturn in markets. We selected US Treasuries as their yield is currently higher than that of equivalent safe-haven bonds in Europe – such as German Bunds.
Attractive as interest rates peak and then fall
Reducing riskier credit
Throughout 2023, we held fewer corporate bonds relative to our long-term asset allocation and now we’ve decided to reduce that further. From a valuation perspective, we prefer investment grade over high yield, EUR over USD and financials over non-financials, which we tend to implement in our bespoke and advisory portfolios.

Given our expectation for a mild recession in the Western world and for interest rates to remain well above pre-Covid levels, the difference in yield between safe and risky bonds could widen in 2024. Although our base case is for defaults to peak throughout the course of the year, any downside risk to growth could lead to a further widening of that differential.
Reducing riskier credit
Long-term trends beyond market cycles
One way to cut through the current market noise is to take a much longer view – as we do over the aforementioned structural cycle. We are convinced that innovation is likely to continue apace in the long term and there are many areas where new business models are emerging.

One such theme is reshoring – the multi-decade shift of investments from China into other emerging markets (or even developed markets). The drawbacks of globalisation, especially the dependence on China, manifested via supply-chain issues during Covid, inflation and geopolitical tensions. Companies are shifting some operations from China to rebalance supply chains and investments are shifting from China to other emerging markets.

That said, amid uncertainties, it is also prudent to focus on themes which are more mature and that exhibit better fundamentals and higher quality. In bespoke portfolios and on an advisory basis, we invest directly in themes across productivity (cloud computing, processing power, robotics and automation), planet (clean energy, water and waste, electric vehicles) and people (future health, the aspiration economy). We also use these themes to inform the wider context for the companies we include in our global stock portfolio.
Long-term trends beyond market cycles
Selected opportunities from a new macro cycle
Given the market slowdown we expect at the start of 2024, alternative investments, particularly private markets, still offer a broad opportunity set and could outperform public market equivalents in the long term.

Specifically, we see opportunities to benefit from possible revaluations in private equity over the coming year as well as capital scarcity in private debt and infrastructure. Our focus for our advisory and bespoke portfolios will be on high-quality businesses that can maintain stable margins and have lower leverage.

Hedge funds with strategies that are not correlated to the broader market can provide good diversification qualities and we continue to include these and on a bespoke basis.] on a bespoke basis.

In real estate, the end of central banks’ monetary tightening cycle typically marks the start of a good environment for private real estate and publicly traded Real Estate Investment Trusts (REITs). Selected opportunities in infrastructure could emerge depending on the policies enacted after the US election.
Selected opportunities from a new macro cycle
Our Contributors


Daniele Antonucci 
Co-Head of Investment & Chief Investment Officer

Nicolas Sopel 
Head of Macro Research & Chief Strategist, Lexembourg

Robert Greil 
Chief Strategist, Germany

Henrik Drusebjerg 
Head of Nordic Investment Strategy

Pinaki Das 
Head of Thematic Research

Marc Eeckhout 
Client Investment Specialist

Portefeuillesamenstelling en onderzoek beleggingscategorieën

Thomas Bilbé 
Head of Asset Allocation

Lionel Balle 
Head of Fixed Income Strategy

Marc Decker 
Co-Head of Direct Equities

Joost Van Beek 
Co-Head of Direct Equities

Paul Linssen 
Head of Fund Solutions

Raphael Drescher 
Head of Alternatives

Dennis Jung 
Asset Allocation Strategist

Adam Lavelle 
Asset Allocation Strategist


Warren Hastings 
Co-Head of Investment & Head of Portfolio Management

Cyrique Bourbon 
Head of Portfolio Construction

Jean-François Jacquet 
Portfolio Construction Strategist

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