U.S. Sector portfolio outlook, positioning, and attribution as of 09/30/2024
September 30, 2024
Outlook:
- We believe the global economy, and particularly the U.S., could maintain slow-to-moderate growth through 2024, but elevated market sentiment amid signs of slowing economic conditions also warrant caution.
- While the Fed and other central banks have begun monetary easing, the impacts of tight monetary policy could linger for some time, and we believe a sustained reacceleration to early-cycle growth remains very unlikely amid a cooling U.S. labor market and reduced tailwinds for consumers.
- The U.S. consumer remains on solid footing, but has limited capacity to accelerate spending from here, in our view, as the excess savings that fueled the post-COVID spending recovery is now effectively depleted and the personal savings rate has normalized around 5%.
- Softening employment trends, which have been percolating under the surface, have become more visible in the labor market data, in our view.
- We believe the Fed has flexibility to continue easing, given disinflationary trends, but the degree of rate cuts expected would still leave the real Fed Funds rate north of 1% at the end of 2025, and we believe materially sharper policy easing is unlikely absent significant economic weakness.
Portfolio Positioning:
- In our view, the evolving late-cycle economic environment warrants a balance of exposures to defensive areas of the market as well as areas that should benefit if economic growth persists.
- We are avoiding several of the most cyclical early-phase sectors, but have moved to an overweight of Financials and added exposure to Real Estate, which we see benefiting from continued economic growth and declining interest rates.
- We maintain a significant-but-underweight exposure to mid-phase sectors in aggregate, where valuations present risk, in our view, if financial results undershoot lofty investor expectations or the near-term benefits of AI underwhelm.
- We are overweight the late-phase, defensive Health Care, Consumer Staples, and Utilities sectors that we expect can outperform as growth slows.
Q3 Attribution
Positive Contributors:
Overweight
- Communication Services
- Utilities
Underweight
- Energy
- Consumer Discretionary
Negative Contributors:
Underweight
- Industrials
- Real Estate
- Information Technology
Attribution Analysis is relative to the S&P 500 benchmark and was current as of the date specified in this presentation. A complete attribution report is available upon request.
The most recent complete presentation can be viewed here.
Any portfolio characteristics, including position sizes and sector allocations among others, are generally averages and are for illustrative purposes only and do not reflect the investments of an actual portfolio unless otherwise noted. The investment guidelines of an actual portfolio may permit or restrict investments that are materially different in size, nature and risk from those shown. The investment processes, research processes or risk processes shown herein are for informational purposes to demonstrate an overview of the process. Such processes may differ by product, client mandate or market conditions. Portfolios that are concentrated in a specific sector or industry may be subject to a higher degree of market risk than a portfolio whose investments are more diversified.
Holdings, Sector Weightings, and Portfolio Characteristics were current as of the date specified in this presentation. The listing of particular securities should not be considered a recommendation to purchase or sell these securities. While these securities were among WestEnd Advisors’ U.S. Sector holdings at the time this material was assembled, holdings will change over time. There can be no assurance that the securities remain in the portfolio or that other securities have not been purchased. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities presently in the portfolio. Individual clients’ portfolios may vary. Upon request, WestEnd Advisors will provide a list of all recommendations for the prior year.