Latest investment update

Published: October 2024

A decisive move by the US Federal Reserve to cut interest rates for the first time since 2020 helped markets recover from a disappointing start to September.

The US Federal Reserve (the Fed) has officially started cutting interest rates by lowering them for the first time since 2020. A rate cut of 0.5% was well received by investors after a wobbly start to September.

Markets kicked off the month on the back foot as concerns grew over the strength of the US economy. An easing jobs market and slowing economic growth caused stock markets to slide.

But some positive economic numbers announced in the second half of the month – causing real-time economic growth rate to track at roughly 3% – along with the Fed’s rate cut and a large stimulus from China, buoyed global stocks to finish strong.

The team at Coutts who manage the funds behind Royal Bank Invest feels encouraged by what the Fed said after the announcement.

Lilian Chovin, Head of Asset Allocation at Coutts, said: “The Fed is confident that it’s getting inflation under control and said it will now support the US jobs markets and economic growth for as long as it’s needed.”

The Fed’s widely anticipated move was its first rate cut since March 2020, back when the world was battling the Covid pandemic.

A larger than expected interest rate cut of 0.5% didn’t come as much of a surprise to us as the central bank has a lot of ground to make up before the end of the year.

The Fed had suggested for the past few months that interest rates would drop by 1% before January – but with only two more announcements expected to happen before then, it was highly likely they’d get the ball rolling now, and at some pace.

Inflation is falling towards the Fed’s 2% target and early estimates of economic growth show the US still holding up well – it’s slowing but still firmly in positive territory.

Elsewhere, the European Central Bank cut interest rates again by 0.25% while the Bank of England kept rates unchanged. In contrast to the rest of the world, the Bank of Japan is actually raising rates generally, but held them unchanged at its last meeting. These announcements were highly expected and had minimal impact on market performance. 

The experts at Coutts were unfazed by the weak data that came out before the Fed’s announcement.

Lilian said: “Slowing economic growth is a normal part of the business cycle so this was something we were expecting.

“Company earnings remain strong so this transition to a slightly slower rate of growth doesn’t impact our outlook for now, especially as the Fed cutting interest rates should help support economic activity.”

Coutts continues to hold more stocks in funds and portfolios compared to their benchmark as they typically perform well during periods of slowing but positive economic growth. But in case of any uncertainty ahead, they also hold government bonds for good diversification.

While their overall bond allocation is balanced compared to benchmark, they’re underweight Japanese government bonds and slightly overweight US and European government bonds as they take different approaches to interest rate changes. 

While much of the world’s economy is showing signs of resilience, China’s in need of a helping hand. A struggling real estate market and stagnating economic growth has meant the country’s central bank has had to step in.

Restrictions have been eased on borrowing money to invest in the Chinese stock market, the level of cash reserves banks must hold has been reduced to encourage lending, and mortgage rates have been cut by 0.5%.

This stimulus in China could have a positive impact into Europe. For example, the affluent middle class in China is a key market for European luxury goods companies. So any excess cash heading their way could quickly be spent on some high-end fashion brands, some of the largest companies in Europe. More broadly, a rebound in Chinese economic growth would be good news for global growth who have relied heavily on the US engine for some time. 

Here you’ll find our previous investment market updates.