Introduction
The third quarter of this year witnessed remarkable performance across nearly all global markets, with stocks reaching new highs and interest rates falling. This success, however, raises questions about whether these extraordinary returns can be sustained until year-end. The article discusses the factors contributing to this growth and potential risks that could lead to a market correction.
Global Market Performance
The third quarter was characterized by strong returns in almost all markets. The MSCI ACWI, which tracks 25 global indices, increased by 7%. Notable gains were seen in the S&P 500 (8%), Nikkei (11%), and Hang Seng (12%) indices. The technology sector led the charge, rising 13%, driven by the performance of seven major companies.
Mexican Market Performance
The Mexican market also experienced significant growth, with the local stock index rising 10% in the third quarter. Bond yields also saw substantial increases.
Factors Driving Market Growth
- Trade Tensions Resolution: The implementation of tariffs initially seemed aggressive, but the actual tariff rate turned out to be less severe than anticipated.
- Federal Reserve Interest Rate Expectations: The Fed’s decision to lower interest rates, as inflation remained stable despite tariff impositions, further supported market growth.
- Fiscal Policy and Economic Growth: The US Congress passed a significant fiscal package, while various sectors maintained robust growth rates.
- Artificial Intelligence (AI) Investments: News and investments in AI-related companies, such as NVIDIA, have fueled a rally in this sector, driving up valuations.
Potential Market Correction Factors
Despite the strong performance, there are potential factors that could lead to a market correction:
- Profit Expectations: A significant drop in expected profits for these companies could trigger a correction. However, this scenario is not currently on the table.
- Fed Interest Rate Cycle Disappointment: Should the Fed’s interest rate reduction cycle fail to materialize due to persistent growth and high inflation, it could negatively impact the market.
Current Market Outlook
Investors currently remain cautious but maintain their positions, as there is still potential for further growth. The absence of US federal government data has caused minimal concern, though its prolonged delay could pose challenges.
The article’s author, Rodolfo Campuzano Meza, Director General of INVEX Operadora de Fondos de Inversión, believes the US government will eventually reach a negotiation agreement, supporting market stability.
Key Questions and Answers
- Q: Can we expect another extraordinary quarter like the third one? A: The likelihood of repeating such performance is low, but investors still anticipate further growth opportunities.
- Q: What factors could lead to a market correction? A: Potential triggers include a decline in corporate earnings expectations or disappointment with the Fed’s interest rate reduction cycle.
- Q: How is the current US federal government data situation affecting markets? A: The lack of recent data has caused minimal concern, but its prolonged absence could create uncertainty.
