Strong economic growth and rising interest rates pulled financial markets in different directions during the third quarter. Capital spending supported business activity and corporate earnings, but a sharp increase in bond yields pressured valuations and limited stock market gains. Heading into Q4, WE Family Offices’ Investment committee sees potential for broader equity participation if interest rates begin to stabilize.
In this episode of The Wealth Enterprise Briefing focused on the Q4 investment outlook, Managing Partner Michael Zeuner and Senior Investment Manager Sam Sudame discuss the committee’s views and their implications for portfolio positioning across equities, fixed income and real assets.
Could steadier rates support a broader equity rally?
The third quarter’s rise in yields reflected strong demand for capital and a more restrictive Federal Reserve stance. A September rate increase followed Chairman Warsh’s hawkish Jackson Hole speech, while geopolitical risks pushed oil prices higher.
Sam believes the 10-year Treasury yield has approached a level consistent with underlying economic growth and inflation. If yields settle, even at elevated levels, pressure on equity valuations could ease and allow earnings growth to play a larger role in returns.
Strong earnings growth and lower valuations support the committee’s slight overweight to U.S. equities. If rates settle, equal-weight equity strategies, small- and mid-cap stocks could begin to perform better as the rally broadens. The committee continues to favor balance across investment styles, company styles and cyclical and defensive sectors.
How does the outlook affect bonds and real assets?
Stabilizing Treasury yields could also reduce pressure on fixed income. The committee maintains its preference for short- to intermediate-duration bonds, with the 10-year Treasury serving as a useful reference point for conditions in the broader bond market.
In real assets, Michael and Sam cover:
- Infrastructure: Power generation and data center construction continue to support the committee’s overweight position.
- Commodities: Demand for industrial materials supports an overweight, while Sam expects agricultural commoditites to benefit as El Niño becomes more prominent.
- Real estate: The committe remains neutral. Valuations appear to have largely bottomed, and prices are beginning to recover, but higher rates continue to pressure capitalization rates.
Inflation, geopolitical developments and the path of interest rates remain risks to this outlook. The committee expects continued capital spending to support economic growth through the fourth quarter.
Listen to the full episode for Michael and Sam’s in-depth discussion of the fourth-quarter investment outlook. If you would like to talk through how these views relate to your family’s portfolio and long-term objectives, we welcome a conversation.
Important Information:
The Wealth Enterprise Briefing contains our current opinions and commentary, which are subject to change without notice. The Briefing is distributed for informational and educational purposes only and does not consider the specific investment objective, financial situation or particular needs of any recipient. Information contained herein has been obtained from sources we believe to be reliable, but we do not guarantee its completeness or accuracy. The information in the Briefing is not a recommendation of any security, and should not be relied upon as investment, legal or tax advice. Please consult with your investment, legal and tax advisors regarding any implications of the information presented in this presentation.
