September 2024 -
As of 31 August 2024
What Lies Beneath?
US consumer confidence rebounded in August on optimism about the resilience of the economy and easing inflation pressures. And whilst markets cheered the rosier outlook of the all‑important US consumer, a deeper dive into the survey data suggests there are growing concerns, particularly about declining labour market conditions. Employment data have turned decisively cooler recently, with the unemployment rate climbing and jobs becoming less abundant. With the survey data also showing consumers remaining very concerned about their personal finances, any further deterioration in jobs could lead to a quickening pullback in spending. This is particularly weighing on lower‑income consumers facing higher prices and now turning more to credit cards as excess savings accumulated during the pandemic have been depleted. And whilst higher‑income consumers have been buffered by rising 401(k) balances and elevated home prices, their propensity to consume could turn quickly as well if layoffs broaden. Let’s hope that rate cuts have been well timed to allow for a cooling of the labour market rather than too late and already facing the risk of a sinking US consumer.
Sidelined
Despite market expectations for an unwinding of the huge pile of money market assets to provide a tailwind as they flow back to risk assets, the category has continued to garner flows, hitting an all‑time high of USD 6.6 trillion in August. Whether it’s extended equity valuations, concerns over bond market volatility or simply still attractive 5% yields keeping investors on the sidelines, they have seemed wary to jump back into risk assets. Unfortunately, those investors parked in money markets awaiting an opportunity have missed out on a huge equity rally, with the S&P 500 returning more than 20% over the past year. And for those more conservative investors who may have considered inching out into longer‑maturity bonds, they too have missed out more recently on a major rally in yields. Perhaps the start of rate cuts on the horizon could entice some investors to come off the sideline, but with a gradual path priced in, it is unlikely to have a huge impact. And for those who remember earning 0% in money markets not too long ago, still getting over 4% could remain compelling for a while longer.
For a region-by-region overview, see the full report (PDF).
Yoram Lustig is the head of Multi-Asset Solutions, EMEA and Latin America, in the Multi-Asset Division. He also is a portfolio manager and the chair of the UK and European Investment Committees.
IMPORTANT INFORMATION
This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.
The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.
Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.
The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.
It is not intended for distribution to retail investors in any jurisdiction.