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abrdn Relaunches Its Emerging Markets ex-China Fund, Focused on Four Key Themes

Relanzamiento del fondo de mercados emergentes de Abrdn

abrdn will relaunch the abrdn SICAV I-Emerging Markets Sustainable Equity Fund under the new name abrdn SICAV I-Emerging Markets Ex China Equity Fund. According to the asset manager, the fund introduces a series of changes for investors seeking to explore more opportunities in emerging markets. abrdn clarifies that the fund is available in Spain and the U.S.

Firstly, the decision to exclude China, as explained by abrdn, is in response to demand from a group of investors seeking active options to manage their exposure to the country. While abrdn continues to offer a wide range of strategies that include China, the firm is responding to client demand for diversifying their options.

Across the industry, the number of firms managing emerging market strategies excluding China has grown from three in 2017 to nearly 50 in 2024, according to Morningstar. abrdn has been managing an emerging markets strategy excluding China since March 2022 for the U.S. market. The change also comes at a time when, according to abrdn, opportunities in emerging markets are increasing, as they are expected to account for nearly 50% of global growth by 2050, according to abrdn’s Global Macro study.

They also note that the managers of the relaunched fund will be the Emerging Markets ex China portfolio construction team based in London and Singapore: Nick Robinson and Devan Kaloo in London, and Xin Yao NG in Singapore, supported by a broader global emerging markets equity team based in five locations outside China, from São Paulo to Singapore.

“China is home to some fantastic companies and is poised to surpass the U.S. as the world’s largest economy around 2035, so this is not a rejection of the Chinese market. However, we recognize that some investors want more flexibility in their approach to China. Ultimately, it’s about choice while embracing some of the key megatrends that we believe will drive emerging markets in the future. We see four powerful themes affecting the ex-China universe: consumption, technology, the green transition, and relocation. The fund invests in many companies that will benefit from these themes. The non-Chinese universe also offers sectoral diversification, as it includes more information technology and financial companies at the index level than the standard emerging markets index. The team believes that the strength of the tech sector will continue to expand beyond the U.S. market and holds a significant active position in companies benefiting from AI investments,” said Nick Robinson, Deputy Head of Global Emerging Markets Equities at abrdn.

The fund will remain classified as Article 8 under the SFDR and will continue to follow the NBIM exclusion list. The benchmark index will switch to the MSCI Emerging Markets ex China 10/40 Index (USD). These changes will not alter the fund’s risk profile. The fund will follow abrdn’s “emerging markets ex-China equity investment approach that promotes ESG aspects.”

By applying this approach, the fund commits to holding a minimum of 10% in sustainable investments, a reduction from the current 20% commitment to sustainable investments. At the index level, the MSCI EM includes 1,328 companies, while the MSCI EM ex China includes only 673. The fund will continue to use a qualitative identification process and avoid investing in companies lagging in ESG performance, incorporating negative screening based on the UN Global Compact, Norges Bank Investment Management (NBIM), controversial weapons, tobacco production, and thermal coal. The fund will also maintain explicit ESG objectives as outlined in its new investment objective and policy.

93% of the Assets in the Broker/Dealers Channel Are Controlled by the 25 Largest Firms in Terms of AUM Concentration

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Concentración en el canal de broker dealers

93% of the assets in the Broker/Dealers (B/D) channel are controlled by the 25 largest firms by assets under management (AUM) concentration, and the top 10 firms have increased their share of advisors to 62%, according to the latest U.S. Broker/Dealer Marketplace 2024 report by Cerulli.

As these companies aim to consolidate and expand their market position, advisory technology will become a strategic imperative and a key differentiator.

Over the past decade, the largest firms have taken advantage of their size, attracting more advisors to their platforms through technological enhancements and aggressive recruitment packages.

The quality of a B/D firm’s technology has proven to be a critical factor for both retaining advisors and attracting experienced advisors from other firms, the consulting firm’s report states.

Cerulli’s study concludes that advisors who switched firms in the past three years most frequently identified the quality of the firm’s technology (55%) as a key factor influencing their decision to join, followed closely by the quality of back-office support (53%) and compensation (49%).

“Investments in technology and administrative support can significantly enhance a firm’s appeal, making it a more conducive environment for advisors to thrive,” says Michael Rose, director.

Rose added that as the appeal of independent channels, which tend to offer greater autonomy and flexibility, looms as a competitive threat, a technology experience that empowers advisors to provide high-quality services and client experiences, while also enabling them to efficiently manage their business, is a powerful defensive and offensive strategy for B/Ds.

Overall, more robust technological infrastructure, better home-office support, and stronger resources for teams working in a collaborative structure are all factors that can enable scale. This allows advisors to work more efficiently, improve the range and quality of services offered to clients, and retain assets, summarizes Cerulli.

“However, scale alone does not guarantee enhanced platform capabilities,” Rose states, concluding that “broker/dealers will need to invest in the right technology to drive advisor growth and ensure a sustained advantage.”

What Will Be the Priority Topics for the SEC Examinations in 2025?

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The Securities and Exchange Commission’s Division of Examinations publishes its annual examination priorities to inform investors and registrants of potential risks in the U.S. capital markets and to highlight the examination topics it plans to focus on in the new fiscal year.

This year’s examinations will prioritize both perennial and emerging risk areas, such as fiduciary duty, conduct standards, cybersecurity, and artificial intelligence.

“The 2025 examination priorities of the Division of Examinations enhance confidence in our constantly evolving markets,” stated SEC Chair Gary Gensler.

The Division reviews compliance with federal securities laws by investment advisers, investment companies, broker-dealers, clearing agencies, and self-regulatory organizations, among other SEC-registered entities.

It also prioritizes examinations of practices, products, and services that, based on a risk assessment, pose higher risks to investors or the integrity of the U.S. capital markets.

The annual publication of examination priorities promotes the SEC’s mission and aligns with the Division’s four pillars: promoting and enhancing compliance, preventing fraud, monitoring risk, and informing policy, the Commission’s statement added.

For fiscal year 2025, in addition to conducting examinations in core areas such as disclosure practices and governance standards, the Division will also assess compliance with new regulations, the use of emerging technologies, and the robustness of controls aimed at protecting investor information, records, and assets.

The 2025 examination priorities cover a wide range of potential risks for investors that companies should consider when reviewing and strengthening their compliance programs.

However, this list is not exhaustive regarding all the areas the Division will focus on next year. The scope of any examination may include analysis of other risk factors, such as an entity’s history, operations, and products and services.

“Our 2025 examination priorities identify key areas of potentially higher risks and related harms to investors. We expect registrants to assess their compliance programs in the areas we’ve identified and make necessary changes to protect investors and maintain fair and orderly capital markets,” said Keith Cassidy, Acting Director of the Division of Examinations.

iCapital Announces That It Has Surpassed 200 Billion Dollars in Assets

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iCapital supera los 200 mil millones de dólares en activos

The global fintech platform iCapital has announced that it has surpassed 200 billion dollars in alternative investment assets.

“Increased demand for high-quality private market funds from global clients has led to this milestone and accelerated the growth of client assets on the iCapital platform,” the firm announced in a statement.

According to iCapital, the financial professionals and asset managers using its platform doubled the amount of assets from 100 billion dollars in December 2021 to more than 200 billion dollars in September 2024.

Additionally, more than 104,000 financial professionals have conducted transactions on the iCapital platform over the past 12 months, with an average of four visits per month, the statement noted.

Currently, the platform provides access to more than 1,630 funds from over 600 asset managers, marking a more than 77% increase in the number of funds available on its platform since December 2021.

“iCapital is honored to help more financial advisors than ever grow their businesses by using our end-to-end technology and operating platform,” said Lawrence Calcano, Chairman and CEO of iCapital. “Our clients are and will continue to be the cornerstone of everything we do. Together, we’ve surpassed this 200 billion-dollar milestone in assets under management, and together we will innovate and transform the alternative investment experience to create opportunities for the long-term successful outcomes that financial advisors seek for their clients.”

iCapital has offices in Zurich, London, Lisbon, Singapore, Hong Kong, Toronto, and Tokyo this year. The firm will open offices in Australia and the Middle East in the next six months. The platform manages more than 28 billion dollars in assets.

Charles Schwab Launches Roadmap for Advisors Who Want to Become Independent RIAs

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Charles Schwab has just launched an RIA Roadmap with “a step-by-step approach to help you design, build, and launch your firm.”

The company highlights that transitioning to the independent RIA model “allows you to prioritize your clients and keep more of what you earn.”

According to the firm, those interested will find information and guidance on defining a business strategy, managing risks, setting up the office, converting accounts, and strengthening their practice.

To access the roadmap, please visit the following link.

Orion Launches Brinker Portfolio Suite for Capital Group ETFs

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Orion, the wealthtech solutions provider for fiduciary advisors, announced the launch of a new suite of ETF portfolios that utilize Capital Group products.

The portfolios, managed by Brinker Capital, are available exclusively on the Orion Portfolio Solutions (OPS) and Brinker platforms.

“This launch marks the introduction of one of the first models composed entirely of Capital Group ETFs, providing financial advisors and their clients access to Capital Group’s long-term investment strategies through Orion’s innovative offerings,” states the release accessed by Funds Society.

Capital Group manages more than $2.7 trillion in assets and has a global presence spanning 32 offices with over 8,800 employees.

“We are excited to offer these innovative ETF portfolios exclusively to our advisors. Capital Group’s long-term focus and strong investment strategies align perfectly with Orion’s commitment to providing advisors with the tools to help their clients succeed. This launch marks an important milestone in our relationship with Capital Group and in our continued efforts to deliver comprehensive wealth management solutions and a wide range of open architecture investment options,” said Ron Pruitt, president of Orion Wealth Management.

Additionally, Pete Thatch, Director of Wealth Management for National Accounts and Products at Capital Group, commented: “All our ETFs focus on the core asset allocation categories used by advisors when building portfolios for their clients and are designed to represent long-term, high-conviction investment horizons. Our ETF suite represents some of our investment group’s distinctive capabilities, with deep expertise and our proven multi-manager approach, and we are thrilled that Brinker has selected Capital Group ETFs to be part of these actively managed model ETF portfolios, available on the Orion platform.”

Key Features of the Brinker Capital Group ETF Model Portfolios:

– Dynamic asset allocation implemented by an experienced team: The portfolios are managed using Brinker Capital’s forward-looking dynamic asset allocation approach, designed to deliver client-centric long-term success. Brinker Capital has more than 20 years of experience managing ETF portfolios.

– Active management: Capital Group’s active ETFs represent some of its distinctive investment capabilities, with deep expertise and a proven multi-manager approach. Capital Group is one of the fastest-growing issuers of active ETFs, representing 19.7% of active ETFs that surpassed $1 billion in assets under management in the past two years.

– Accessible investment: With a minimum investment of just $5,000, Brinker Capital Group ETF Models are accessible to a broad audience.

The Merger Between Security and BICE Has Received Approval From Antitrust Authorities in Chile

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(LinkedIn) Fiscalía Nacional Económica (FNE) de Chile

The merger between financial groups BICECORP and Grupo Security is getting closer to becoming a reality. The most recent milestone was the approval from the National Economic Prosecutor’s Office (FNE), one of Chile’s entities overseeing competition matters. With this, the companies are now awaiting the green light from the Financial Market Commission (CMF) to kickstart their Public Tender Offer (OPA).

According to a statement, the FNE released its report on the merger, approving the integration of both financial groups—which operate in banking, investments, and insurance—without conditions. This means the companies are not required to implement any mitigation measures.

In their public statement, the groups described the approval from the Prosecutor’s Office as “a very important step in the regulatory stages required for the integration of both entities.”

The next key event is the CMF’s approval, which is currently reviewing the integration operation. Once the regulator gives its approval, BICE and Security will announce the next steps, including the specifics of the OPA that will finalize the transaction.

Both firms emphasize that their merger is a “unique project” in the Chilean financial market. “We are convinced that this union will add value and bring significant benefits to our clients, which will translate into a greater product offering with excellent service that complements the financial solutions we provide, helping us continue to be a driving force for the country’s development and its business system,” they stated in the press release.

They further stressed that the integration “will position the new entity as a significant player in terms of loan volume, fund management, and insurance in Chile.”

In the asset management business, BICE and Security are primarily focused on mutual funds. Data from the Mutual Fund Managers Association (AAFM), which includes figures across all strategy categories as of last Friday, shows that BICE manages 4.459 trillion Chilean pesos (4.827 billion USD), while Security manages 3.254 trillion Chilean pesos (3.523 billion USD).

Both financial groups announced their merger earlier this year. At the time, they projected that the resulting company would have a total economic value estimated at 3.13 billion USD, with total assets of 37 billion USD and more than 2.4 million clients.

Growth or Value: Who Benefits More From the Fed’s Interest Rate Cuts?

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The interest rate cut made in September by the U.S. Federal Reserve (Fed) is marking a shift in market trends heading into the final quarter of the year. According to some international asset managers, while the move is gradual, the beginning of the global shift in monetary policy could be accompanied by the end of the leadership of technology stocks and cash.

This is the interpretation from Allianz GI, for example, whose fourth-quarter outlook suggests that we may be entering a period of below-potential growth, where downside risks will naturally increase. “After a period of relative calm in the markets, despite some spikes in volatility, investors should be prepared for a possible return of structural volatility in 2025,” they state at Allianz GI.

Despite their cautious tone, Allianz GI clarifies that these early signs should not be interpreted as a negative signal for equity markets. “As inflation and interest rates decrease, this trend is likely to be positive for quality and growth stocks. We expect these styles to register better returns in the coming months. Volatility is likely to rise in the final stretch of the year, especially considering the U.S. elections in November, so it could be a good time to carefully consider some defensive positions to balance portfolios,” says Virginie Maisonneuve, Global Chief Investment Officer of Equities at Allianz GI.

For Chris Iggo, CIO Core Investment Managers at AXA Investment Managers and Chairman of the AXA IM Investment Institute, “the bull market could extend well into next year.” In his opinion, the Fed is doing a great job, and market prices should reflect the weighted probability of all potential outcomes. “We do not know the likelihood of abrupt changes in market confidence, erroneous economic data, or the impact of the upcoming U.S. elections. If markets are rational, the current price is the best of prospects. Betting against that could be risky,” Iggo says.

In fact, he believes that most investors should be more satisfied with growth equities now that interest rates are heading toward 3%. “It is better to own equities when analysts confidently revise upward their earnings-per-share expectations than when rate hikes threatening a recession cut forecasts, as happened in 2022,” he argues.

Stephen Auth, CIO of Equities at Federated Hermes, explains that the Fed has realized that “it needs to start cutting aggressively to prevent a hard landing from turning into a full-blown recession,” and that “if the economy continues to slow down as we expect, there will surely be more cuts.” His main conclusion is that this new cycle of rate cuts will benefit value and small-cap companies, as opposed to growth.

“The market expects an additional 75 basis points of cuts by the end of the year, and another 125 in 2025. We see at least this much ahead. All of this is good news for value and small-cap companies, which, unlike the large cash-rich tech companies in the growth indices, primarily finance themselves using short-term interest rates. But investment flows to this side of the market will depend on the Fed continuing to act aggressively and signs suggesting that the current economic weakness is stabilizing at pre-recession levels,” he argues.

Investment Opportunities

In Maisonneuve’s opinion, UK stock valuations appear attractive and could benefit from rate cuts and political stability. Additionally, technology and small-cap companies could perform well in a rate-cutting, moderate-growth environment. She also believes that water-related stocks are good defensive opportunities in this context, as they are closely tied to a natural resource and are not influenced by the market.

“In general, we continue to pay special attention to the Asia region. Within equities, we prefer Japanese stocks due to ongoing structural reforms and the country’s recent stock market crisis, the second largest in its history. Moreover, companies are revising their profits upward, increasing dividends, and buying back shares. In China, the apparent recovery of the real estate market could act as a catalyst for stocks, which mostly trade at very attractive prices. There is no doubt that geopolitics continues to pose certain challenges, as the potential escalation of current trade tensions could affect confidence. Therefore, we expect a more favorable environment for Chinese equities in the fourth quarter of 2024,” Maisonneuve explains.

The Allianz GI expert also refers to India, where she believes the valuation premium of stocks is more than offset by the country’s strong growth. “The fundamentals are very solid, especially the region’s favorable demographics, with a large workforce and an average age of just 28 years, suggesting positive economic prospects for the coming years,” she concludes.

For his part, Iggo adds that “optimism is spreading, and equity markets are reaching new highs. The frenzy around artificial intelligence (AI) may have subsided, but the revolution is underway, and we shouldn’t rule out upside surprises in tech earnings in the third quarter and in 2025.”

The Global Housing Market Bubble Risk Decreases for the Second Consecutive Year

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Riesgo de burbuja en el mercado inmobiliario

The risks of bubbles in the real estate sector of the cities analyzed in the UBS Global Real Estate Bubble Index have decreased, on average, for the second consecutive year. According to the index, there is little evident risk of a housing bubble in San Francisco, New York, and São Paulo, which shows the lowest bubble risk among the analyzed cities. In Europe, following new declines in the index score, London, Paris, Stockholm, and Milan also fall into this low-risk category. Likewise, the bubble risk in Warsaw remains low.

On the other hand, Miami shows the highest bubble risk among the cities in this study. There is also a high bubble risk in Tokyo and Zurich, although in these cases, the index score has dropped significantly compared to last year. Additionally, there is a clear elevated bubble risk in Los Angeles, Toronto, and Geneva.

In the middle, the index reveals moderate risk in Amsterdam, Sydney, and Boston. In the same risk category are Frankfurt, Munich, Tel Aviv, and Hong Kong, after significant reductions in imbalances. Vancouver, Singapore, and Madrid complete the group of cities with moderate bubble risk. Dubai, included in this group of cities with moderate bubble risk, recorded the highest increase in the risk score among all the analyzed cities.

Bubble Formation and Burst

Currently, inflation-adjusted housing prices in the analyzed cities are, on average, about 15% lower than in mid-2022, when global interest rates began to rise. Claudio Saputelli, head of the real estate division at UBS Global Wealth Management CIO, explains that the cities that saw the largest price corrections “are those that showed a high housing bubble risk in previous years.”

Real prices in Frankfurt, Munich, Stockholm, Hong Kong, and Paris are at least 20% below the peaks they reached after the pandemic. Vancouver, Toronto, and Amsterdam recorded significant price drops of around 10% in real terms.

Overall, the last four quarters were characterized by weak housing price growth. However, significant corrections continued to be recorded in Paris and Hong Kong. On the contrary, in the most sought-after areas of Dubai and Miami, housing prices continued to rise. Additionally, in some cities with a severe housing shortage, such as Vancouver, Sydney, and Madrid, real prices rose more than 5% compared to the previous year.

Housing Shortage as a Stabilizer

On average, a skilled employee in the services sector can afford 40% less living space than in 2021, before the global interest rate hikes. Current price levels do not seem sustainable given the prevailing interest rate levels, especially in markets with high homeownership rates.

However, a significant deterioration in affordability does not necessarily lead to price corrections. The growing housing shortage, reflected in rising rental prices, helped stabilize many urban housing markets. Real rental prices have increased by an average of 5% in the last two years, outpacing income growth in most cases. In most of the analyzed cities, rental price growth has even accelerated over the last four quarters.

The UBS study reveals that supply is offering no relief, as high interest rates and rising construction costs have been major burdens on housing construction. Building permits have declined in most cities over the past two years.

A Certain Relief in Sight

Housing market dynamics are set to improve. Rising rental prices support the demand for homeownership in urban areas. The fall in interest rates will make the cost advantage of ownership clearly lean toward buying. First-time buyers will return to the market as affordability improves. Matthias Holzhey, lead author of the study at UBS Global Wealth Management, concludes that real housing prices in many cities “have bottomed out” and adds that it is likely that “economic prospects will determine whether prices surge again or evolve more laterally.”

UBS Global Real Estate Bubble Index: Overview, 2024

Regional Outlook

In Europe, London’s real estate market has lost a quarter of its value since its all-time high in 2016. More interest rate cuts are expected from the Bank of England, which could rekindle housing demand, especially as rents are also rising. Forecasts for the prime market seem a bit bleaker, according to the study, as uncertainty over unfavorable tax regimes for the wealthy could undermine demand in this segment.

Real estate prices in Warsaw skyrocketed nearly 30% between 2012 and 2022. Solid employment prospects, metro expansions, and modern developments have kept the market attractive for new residents and buy-to-let investors. A new government subsidy program triggered another buying frenzy in 2023. However, the price dynamics are expected to slow down in the coming quarters, according to the study.

Both Frankfurt and Munich showed very high housing bubble risks back in 2022. Since then, the rise in mortgage rates has caused both markets to drop, with real estate prices falling by 20% from their respective peaks. The forecast for interest rate cuts, combined with supply shortages, should trigger a price recovery.

Backed by falling mortgage rates and strong international demand, real prices in Paris rose by 30% between 2015 and 2020. Emigration, lending restrictions, rising mortgage rates, and an increase in property taxes have curbed demand. With a 10% inflation-adjusted drop in the last four quarters, Paris was the weakest real estate market in Europe among all the cities analyzed in the study.

Regarding Switzerland, buying a home to live in Zurich now costs almost 25% more in real terms than it did five years ago. In the last four quarters, the Swiss city also experienced one of the largest rent increases among all the cities analyzed in the study. The proportion of owner-occupied homes is decreasing, as new buildings are often marketed as buy-to-let properties. Due to the very limited inventory of owner-occupied homes in Zurich, these will increasingly be seen as a luxury good.

Middle East

Driven by falling interest rates and the growing housing shortage, real estate prices in Tel Aviv tripled between 2002 and 2022. The rise in mortgage rates ended the boom two years ago, and demand shifted to the rental market. As a result, real prices fell by 10% by the end of 2023. However, housing transactions began to recover in 2024 due to the fear of missing out on the trend, despite security concerns.

After a seven-year price correction, the bubble risk signal in Dubai was low in 2020. Since then, transaction figures have set new records each year, and the oversupply has been absorbed. In the last four quarters, real estate prices increased by nearly 17% and are 40% higher than in 2020. The report states that a high proportion of unforeseen (likely speculative) transactions and the large volume of new supply could trigger a moderate price correction in the short term.

Asia-Pacific

In the last four quarters, real estate prices in Hong Kong registered a double-digit decline. Inflation-adjusted, housing prices are back to levels not seen since 2012. The number of transactions plummeted, and mortgage growth stalled. Strong economic growth and falling interest rates should support demand next year.

In Singapore, rental prices have outpaced housing prices over the past five years, driven by the influx of global talent and construction delays. Last year, however, real rents fell by 7%, while prices rose by 3%. High interest rates and the reduction of supply bottlenecks have increased unsold inventories, suggesting moderate price inflation in the future.

Due to high interest rates, Sydney is currently the second most unaffordable city in the study, surpassed only by Hong Kong. However, inflation-adjusted prices increased slightly over the last four quarters and are only about 10% below the 2022 peak in real terms. The resilience of prices is mainly due to the acute housing shortage.

Real estate prices in Tokyo have risen around 5% in recent quarters, continuing the trend of previous years. In the last five years, housing prices have risen more than 30% in inflation-adjusted terms, more than double the rate of rent increases. Tokyo has one of the highest price-to-income ratios among all the cities in the study.

Americas

High inflation over the past two years has significantly reduced imbalances in Canada’s housing market. Despite lower affordability, the housing market has held up well. In inflation-adjusted terms, purchase prices in both Toronto and Vancouver are only slightly below the levels of three years ago.

After a prolonged period of weakness, housing prices in São Paulo have risen slightly for the second consecutive year in inflation-adjusted terms. However, real prices are still more than 20% below the peak they reached at the end of 2014. Renting remains financially more attractive than homeownership due to very high interest rates. As a result, rents soared by nearly 10% in real terms over the last four quarters.

The homeownership market in the United States is becoming increasingly less affordable, as the monthly mortgage payment as a percentage of household income is much higher than it was during the peak of the 2006-2007 housing bubble. Despite its low affordability, housing prices in New York have not corrected drastically. They are only 4% below 2019 levels and have even risen slightly in the last four quarters.

Boston’s real estate market has seen a 20% price increase since 2019, outpacing both the local rental market and income growth. However, the local economy has recently suffered, with layoffs primarily in the tech and life sciences sectors, which could change this trend.

Driven by the luxury market boom, prices in Miami have increased by nearly 50% in real terms since late 2019, with 7% of that occurring in the last four quarters. In contrast, real housing prices in Los Angeles have barely risen since mid-2023. Due to declining economic competitiveness and the high cost of living, Los Angeles County’s population has been decreasing since 2016. Consequently, rents have not kept pace with consumer prices.

San Francisco’s real estate market is showing signs of a turnaround. After real prices corrected by 8% last year, they remained stable over the last four quarters. The stock market boom and falling interest rates have already begun to revitalize the luxury segment, and sales are increasing.

U.S. Consumer Confidence Fell in September

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The Conference Board Consumer Confidence Index® dropped in September to 98.7 points, down from 105.6 points in August, the organization reported in a statement.

The Present Situation Index, based on consumers’ assessment of current business and labor market conditions, fell by 10.3 points to 124.3 points. The Expectations Index, which reflects consumers’ short-term outlook for income, business activity, and the labor market, decreased by 4.6 points to 81.7, but remained above 80, which could indicate expectations of a recession.

“The September decline was the largest since August 2021, and all five components of the Index deteriorated. Consumers’ assessments of current business conditions turned negative, while views on the current labor market softened further. Consumers also became more pessimistic about future labor market conditions and less positive about future business conditions and income,” said Dana M. Peterson, Chief Economist at The Conference Board.

Peterson added that the drop in confidence was more pronounced among consumers aged 35 to 54.

She also noted that, as a result, in a six-month moving average, the 35 to 54 age group has become the least confident, while consumers under 35 remain the most confident. Confidence declined in September across most income groups, with consumers earning less than $50,000 experiencing the sharpest drop. In a six-month moving average, consumers earning over $100,000 remain the most confident.

“The deterioration of key index components likely reflects consumers’ concerns about the labor market and their reactions to reduced working hours, slower payroll growth, and fewer job openings, even though the labor market remains healthy, with low unemployment, few layoffs, and elevated wages. The proportion of consumers expecting a recession in the next 12 months remained low, but there was a slight uptick in those who believe the economy is already in recession,” Peterson added.

The proportion of consumers expecting higher interest rates over the next 12 months fell for the fourth consecutive month to 46.5%, the lowest since February 2024. The percentage expecting lower rates rose to 33.3%, the highest since April 2020. September’s written responses also included more mentions of interest rates as a factor influencing consumers’ views on the U.S. economy.

Despite the slowdown in overall inflation and a decline in the prices of some goods, the 12-month average inflation expectations rose to 5.2% in September. However, this figure remains well below the peak of 7.9% reached in March 2022.

Mentions of prices and inflation continued to top the list of written responses as factors affecting consumers’ views on the economy, though there was a slight increase in the number of respondents mentioning lower inflation. Meanwhile, consumers’ expectations for the stock market stabilized after the financial market turbulence in early August: 25% of consumers expected stock prices to fall over the next year (down from 26.5% in August), while 47.6% expected stock prices to rise (slightly down from 47.9% in August).

In this context, plans to purchase major appliances were mixed, and plans to buy a smartphone or a laptop/PC in the next six months declined. However, in a six-month moving average, plans to buy new homes and cars improved slightly. When asked about their plans to purchase more goods or services in the next six months, consumers showed a slightly higher preference for buying goods.

A new question about services in this month’s survey revealed that consumers remained willing to travel and dine out in September. It was noted that consumers continued to show a strong interest in home streaming entertainment, but interest in going to the movies had increased in recent months. Regarding non-discretionary services such as healthcare and utilities, expected spending for the next six months remained high.

In September, written responses about politics, including the November elections, remained below the levels seen in 2020 and 2016.