2024 Global Equity Outlook
Fourth Quarter
Key Takeaways
The new U.S. president’s trade policies could significantly impact the global economy, influencing inflation, interest rates and economic growth.
Despite the political landscape, long-term investment results are more influenced by demand for goods and services. Current trends show a slowdown in industrial activity and consumer demand.
Free Traders Take a Back Seat in This Election Cycle
Tariffs have been major talking points on the 2024 campaign trail. They’re popular with some voters because they protect certain domestic companies and their workers. On the other hand, tariffs can have material impacts throughout the economy.
The most recent Democratic and Republican administrations have each demonstrated protectionist tendencies, with a particular focus on China. During his term in office, former President Donald Trump instituted a series of tariffs that grew from a narrow focus on solar panels and washing machines to a broader range of Chinese goods. He also imposed steep tariffs on steel and aluminum coming into the U.S. from anywhere but Canada and Mexico.1
If returned to office, Trump proposes increasing the tariff on all Chinese goods to 60% and imposing a 10% tariff on products from the rest of the world.2
Vice President Kamala Harris’s trade policy views are still coming into focus, but it’s reasonable to expect her approach to be aligned with President Joe Biden’s. Therefore, it’s notable that while Biden adjusted some of Trump’s tariffs, he didn’t reverse them. Furthermore, he introduced a fresh set of tariffs on Chinese goods this past May.
Tariffs Have Ripple Effects
Regardless of who authors them, tariffs are generally a headwind to the global economy. They’re inflationary because they increase the cost of raw materials and finished goods. Those higher costs are often passed through to the consumer, putting upward pressure on prices.
Above-target inflation, in turn, could spur the Federal Reserve (Fed) and other central banks to slow or pause rate cuts. As the current inflation fight reminds us, a sustained period of higher interest rates harms global growth and dampens economic activity.
Tighter monetary policy in the U.S. also feeds a stronger dollar, which hurts exporters and multinational companies that convert their foreign earnings back to U.S. currency. A strong U.S. dollar makes it harder for emerging markets countries to repay their dollar-denominated debt.
We don’t factor anticipated election outcomes into our investment process. However, the candidates’ views on trade and tariffs are worthy of attention because the president doesn’t need a cooperative Congress to enact policy. So, whoever moves into the Oval Office on January 20, 2025, will have the authority to act unilaterally on an issue with significant economic implications.
For Investors, Demand Merits More Focus Than Politics
The U.S. presidential campaign will dominate the news cycle and could be a source of volatility throughout the fourth quarter. In the long term, however, demand for goods and services has a much more significant impact on investment results.
For most of this year, industrial activity has been slowing while consumer demand has stood out as a bright spot. More recently, however, we’ve seen higher prices, slowing wage growth and lighter bank accounts begin to dampen consumer appetites.
Pockets of strength remain, but services spending is softening. Many chain restaurants have reported flat or declining same-store sales growth, and some of those reporting growth attribute the rise to price increases rather than volume.3 Travel spending is also weakening, as hotels report declining revenue per room and airlines resort to discounting to fill aircraft.
The Fed shifting into loosening mode may stimulate demand, but questions remain about how long it will take for lower rates to have an effect. This is especially important in the housing market, where affordability makes existing homeowners reluctant to move up and limits the availability of lower-priced properties for new buyers.
European Businesses Are Experiencing Sluggish Demand
With inflation falling toward its 2% target, the European Central Bank joined emerging markets banks and jumped ahead of the Fed when it cut key lending rates in June. This supports eurozone economies, which have struggled amid slowing global growth.
Despite lower rates, Europe’s recovery has been slow to gain traction. Due to their smaller local markets, European businesses tend to depend more on international demand than their U.S. counterparts. As a result, slowing global growth has weighed heavily on eurozone exporters of machinery, vehicles, chemical and agri-food products.
China’s slowdown has been especially impactful since the country is a key end market for industrial companies such as Volkswagen and BMW. Weak consumer demand in China has also weighed on Europe-based luxury goods makers, including Hugo Boss and LVMH.
Positive Trends Continue in Japan Despite August’s Volatility
After decades of struggling with deflation, efforts to reflate Japan’s economy came to fruition in 2022 amid rising energy prices, a weakening yen and rising wages. The Bank of Japan’s recent rate hike aimed at shoring up the yen and curbing inflation spurred the biggest one-day drop in the country’s stock market in more than 35 years.
The market subsequently recouped those losses, and the positive trends supporting Japanese stocks remain intact. These trends include corporate governance reforms encouraging businesses to adopt more shareholder-friendly practices, such as returning excess capital to shareholders through dividends and share buybacks.
Other positive trends include government policy encouraging spending on technology to digitize Japan’s economy. In addition, industrial companies are seeing rising demand for factory automation equipment to support global reshoring activity and for gas- and nuclear-powered turbines.
Falling Interest Rates Are Positive for EM Stocks
The relatively narrow differences between U.S. and emerging markets (EM) economic growth and interest rates have contributed significantly to EM stocks' relative underperformance. However, we think this could change in the coming months.
An encouraging story is developing in emerging markets with the end of U.S. economic exceptionalism. After weakening sharply in the past decade, emerging economies are rebuilding their growth lead over developed economies, including even the strongest one, the U.S. As economic growth picks up, corporate earnings tend to follow.
We believe the market’s repricing of expectations for U.S. interest rates and growth will make EM equities more attractive. Key factors include:
The potential widening of the EM economic growth premium over developed markets. Despite weak growth in China, emerging markets are outgrowing significantly compared to developed markets.
More flexibility for EM central banks to be responsive to domestic inflation and economic conditions. EM interest rates rose more sharply than development markets in 2022, so they now have further to fall.
Other positives include attractive relative valuations, a weaker U.S. dollar and the potential diversification benefits of adding emerging markets stocks to portfolios with overweight positions in U.S. equities.
The U.S. macroeconomic and political cycles represent potential risks even with these positive drivers. Given the trade and tariff discussions, the heightened focus on the upcoming U.S. elections could become an obstacle.
China’s Economy Is Underperforming Expectations
China’s economy appears to be losing momentum, with the latest economic growth reading below expectations. Despite the miss, policymakers say they’re committed to hitting the country’s growth targets for the year. As such, they’ve introduced programs to stabilize the real estate market and stimulate consumption.
Persistent property market problems remain central to the country’s economic challenges. A new “finished homes” policy aims to restore buyer trust damaged by project delays and developer defaults. The policy mandates the sale of completed homes rather than the practice of preselling unfinished properties.4 These new measures complement previous measures designed to support developers.
The government has also implemented measures to help boost consumption. These include trade-in programs, one offering subsidies to consumers trading in high-emission cars and another encouraging the purchase of high-efficiency appliances. Such targeted initiatives are helpful, but a more comprehensive plan may be necessary to promote longer-term growth.
¹Scott Horsley, “Trump Formally Orders Tariffs on Steel, Aluminum Imports,” NPR, March 8, 2018.
²Chris Pandolfo, “Economists Weigh Pros and Cons of Trump Plan for 60% Tariff on China,” Fox Business, April 12, 2024.
³Alicia Kelso, “Q2 Illustrates a Tough New Normal for Restaurants, with No End in Sight,” Nation’s Restaurant News, August 9, 2024.
⁴Lizzi C. Lee, “A New ‘Band-Aid’ for China’s Property Market: Can It Stop the Bleeding,” The Diplomat, August 26, 2024.
References to specific securities are for illustrative purposes only and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.
International investing involves special risks, such as political instability and currency fluctuations. Investing in emerging markets may accentuate these risks.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
Historically, small- and/or mid-cap stocks have been more volatile than the stock of larger, more-established companies. Smaller companies may have limited resources, product lines and markets, and their securities may trade less frequently and in more limited volumes than the securities of larger companies.
Diversification does not assure a profit nor does it protect against loss of principal.
Generally, as interest rates rise, bond prices fall. The opposite is true when interest rates decline.
Past performance is no guarantee of future results. Investment returns will fluctuate and it is possible to lose money.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.