Strategic Sector Selector - Proceeding with caution

After a brief wobble at the beginning of the quarter, global equities recovered and registered decent returns in Q3 2024. There were signs of softening economic growth having an impact and mega-cap technology stocks underperformed despite the first rate cut by the Fed in this cycle. We expect global growth to stay lower than average in the near term (although we think recession is a tail risk), and we assume that a recovery will start in 2025. We think equity markets may struggle for direction after strong returns year-to-date, although we do not expect the market expansion to end. With that in mind, we reshuffle our allocation to cyclical sectors slightly by downgrading basic resources to Underweight and upgrading insurance to Overweight. Therefore, we keep the balance of defensives and cyclicals within our model sector allocation. At the same time, we maintain our allocation to select rate-sensitive sectors that we expect to be boosted by continued monetary easing.
Changes in allocations:
- Upgrades: insurance (UW to OW)
- Downgrades: basic resources (N to UW)
Most favoured | Least favoured | |
Sector
|
US retailers US food, beverage & tobacco |
US automobiles & parts European travel & leisure |

Notes: Data as of 30 September 2024. On the horizontal axis, we show how far a sector’s valuation is above/below that implied by our multiple regression model (dividend yield relative to market). The vertical axis shows the perpetual real growth in dividends required to justify current prices relative to that implied for the market. We consider the sectors in the top right quadrant expensive on both measures, and those in the bottom left are considered cheap. See appendices for methodology and disclaimers.
Source: LSEG Datastream and Invesco Global Market Strategy Office