LD Fonde publishes on its website:
Despite great geopolitical uncertainty and fluctuations in the financial markets, the 3rd quarter of 2024 has provided great returns for all LD Fondes members.
LD Välger, which is the largest investment pool at Lønmottagernes Dyrtidsmidler, has given a positive return of 7.4% year-to-date in 2024. For the past 36 months, the return is 11.8%. The return on the wage earners’ holiday funds is per 1 October of 8.9%, and since the start there has been a positive return of 15.5%. The 3rd quarter of 2024 has been characterized by positive returns for all the main asset classes – high-grade bonds, credit and equities.
Falling interest rates in focus
The stock markets have given positive returns throughout the year, but also large fluctuations. Global shares measured by the MSCI World index have produced a return of 17.8% year-to-date measured in Danish kroner. Danish shares represented by the leading OMXC25 index have given a return of just over 7.1%. In contrast to the first half of 2024, when just six or seven large American companies accounted for the added value, the third quarter’s returns have been spread over smaller companies.
The primary reason for the continued rising stock markets is that the US economy is still strong. The service sector in particular contributes to maintaining growth, which is positive, as this sector makes up the majority of economic activity in the United States. On the other hand, the manufacturing sector shows a somewhat lower level of activity, and the leading indicators for the sector have fallen considerably. In addition, there are beginning signs of weakness in the labor market. Unemployment came from a historically low level, but has now begun to rise at a pace that typically signals a recession. Core inflation in both Europe and the US is still above the central banks’ targets, but has declining trends. That was also the purpose of the violent interest rate increases in 2022 and 2023.
In the 3rd quarter, both the US (FED) and European central bank (ECB) decided to lower interest rates in response to a slowdown in the labor market and falling inflation. The assessment was that it was necessary to ease the pressure to support economic growth. The result was an easing from the FED of 0.5%, while the ECB only cut by 0.25% in September, having already cut by 0.25% in June. The yield on 10-year US Treasuries has fallen from 4.4% to 3.7% in Q3, while German 10-year Treasuries have fallen from 2.6% to 2.1% over the same period. The German economy in particular gives cause for concern. The manufacturing sector is struggling, which is why it is expected that the European Central Bank will come up with further interest rate cuts soon.
China’s economy has also long given cause for concern. At the end of September, significant monetary easing and fiscal measures were announced to stop the economic slowdown. This resulted in sharp increases in the Chinese stock markets.
Political risk
The geopolitical uncertainty is also worth noting. The conflict between Israel and the neighboring countries of Palestine and Lebanon, as well as Russia’s continuing war with Ukraine, can contribute to major fluctuations in oil and energy prices if the conflicts escalate. In addition, the upcoming US presidential election creates further uncertainty.
In their risk assessments, the financial markets must balance monetary policy easing, continued high activity in the service sector and growth in the USA with beginning signs of weakness in the labor market, slowdown in the manufacturing sectors and geopolitical uncertainty. It is still difficult to assess whether the economy is headed for a “soft landing” or a “hard landing”, which is why it may be wise to remain neutral at this time.
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