Harbor Consensus Highlights – Q3 2024

At the heart of Harbor’s DNA is our focus on hand-selecting and vetting investment teams with differentiated approaches. Each quarter, Harbor conducts the Harbor Consensus, a survey of our investment partners, in an effort to better understand trends and themes that permeate stylistic and asset class preferences and specialties. Please note that we conducted this quarter’s survey ahead of the Fed’s 50 basis point rate cut at its September meeting.

Hoping for the Best, Expecting a Wide Range of Potentials

Market expectations increased for rate cuts by the Federal Reserve ahead of the Fed meeting in September, though the timing and magnitude of those cuts remained less clear. As exhibited in the following chart, Harbor’s investment partners believe Fed action will help drive inflation rates under 3% over the next 12 months -- for the first time in two-and-a-half years.

Source: Harbor Consensus Survey Q1 2022 – Q3 2024. Partially colored bar represents the most recent quarter.

Similarly, our investment partners now believe 10-year U.S. Treasury yields will drop below 4% over the next 12 months to 3.64%, suggesting that expectations for yields have now passed their peak. Notably, this marks the first instance since the second quarter of 2023 that the forward 12-month view on this metric sank below this 4% threshold. The third quarter reading also represented a sharp decrease from last quarter’s estimate of 4.25%, amounting to the largest quarter-over-quarter decline (-0.61%) since the inception of the survey in Q2 2020. The next-largest drop was in Q2 2023 and amounted to only -0.22%.

Source: Harbor Consensus Survey Q2 2020 – Q3 2024. Each line bar represents the quarterly range of expectation based on the survey during each quarter, beginning with Q2 2020, and running through the most recent quarter (Q3 2024) in pink. “Xs” represent the average expectation based on the survey during each quarter.

In our view, these results exhibit the group’s overarching belief that the Fed will move with intentionality through the cutting cycle in an effort to drive down the cost of borrowing.

Ambiguity in Macro Conditions Lends Itself to Less Emphasis on Sector Bets

That said, Harbor’s affiliates showed less conviction across the board on the sectors they believe stand to benefit or be negatively impacted by changing macro conditions. Though the confidence in rate cuts holistically remained solid, we believe a competitive upcoming U.S. presidential election and unsettled geopolitical tensions gave our investment partners pause on the sectors they believed were best- or worst-positioned to benefit over the next 12 months.

As you can see in the following exhibit, conviction in most sectors hovered at or close to neutral in our third-quarter survey. Harbor’s investment partners showed muted conviction (both positive and negative) across the range of sectors in the third quarter in comparison to other quarters over the past two years of polling. Given macro uncertainty, the poll responses suggest it may be more difficult to find success in sector bets, encouraging a shift in focus towards the importance of stock selection. Importantly, we believe our investment partners generally rely less on allocation bets and instead find their edge through rigorous, bottom-up fundamental research and honing in on inefficiencies at the stock level.

Notably, despite market concerns around valuations, managers remain slightly bullish on Technology, though conviction dropped off from recent levels. Instead, our investment managers are now finding other sectors more attractive, as evidenced by the Energy sector turning neutral from negative in the most recent four quarters and sentiment on Financials flipping from negative in the second quarter to positive in the third quarter. On the other hand, bearishness for the Real Estate and Utilities sectors persisted in the third quarter on a continued trend for both.

Source: Harbor Consensus Survey Q3 2021 – Q3 2024. Respondents are asked to select the singular sector in which they have the highest and lowest conviction in. Each line bar per sector represents the quarterly conviction in that sector in pink, beginning with Q2 2020, and running through the most recent quarter (Q3 2024) in blue.

Thinking Outside the Box

Although common threads abounded in our Q3 2024 Harbor Consensus, managers provided their “out of consensus” calls for the next 12 months. This serves as a reminder that the global investment landscape is a complex space with a multitude of considerations always at play.

Source: Harbor Consensus Survey Q3 2024.

Conclusions

All things considered, these survey responses suggest to us the majority of Harbor’s investment partners are confident in the Fed’s commitment to lowering rates. However, as the market is not providing any clear direction on which way to go, our investment partners’ positive and negative sentiment towards broader pockets of the market remains muted until clarity on the macro backdrop comes into focus. As always, we believe active management and a rigorous stock-selection process remain the most prudent avenue to alpha generation, especially in times when attractive areas of the market are less obvious and macro driven.

The Harbor Consensus

Rigorous manager selection has been central to Harbor’s mission since its founding four decades ago. We partner with managers that we view as best-in-class, and we have a great deal of respect for their investment views. To harness this wealth of knowledge and experience, Harbor’s investment team surveys our investment partners quarterly for their views on a variety of investment topics. Most questions are standard from quarter to quarter, allowing us to examine how the managers’ views evolve over time. We also include one or two special questions each quarter, to gauge our partners’ views on relevant topics of the day. The survey responses are gathered into the Harbor Consensus, which is one input into the mosaic of information that Harbor’s Multi-Asset Solutions Team uses to develop its own asset allocation views.

Important Information

The views expressed herein may not be reflective of current opinions, are subject to change without prior notice. This material is for informational and illustrative purposes only. This material does not constitute investment advice and should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or to adopt any investment strategy.

Investing entails risks and there can be no assurance that any investment will achieve profits or avoid incurring losses.

Alpha refers to excess returns earned on an investment above the benchmark return when adjusted for risk.

A basis point is a standard measure for interest rates and other percentages in finance. One basis point equals 1/100th of 1%, or 0.01% (and.0001 in decimal form).

Polling: The above mentioned were Harbor created polls conducted as part of the Q3 2024 Harbor Consensus. Respondents consisted of subadvisors, affiliates with the group trust, and other investment groups that work with Harbor Capital who were invited to participate in the survey. There were a total of 24 participants. For the inflation rate expectations question (first chart), 24 participants responded. For the next 12-months 10-year Treasury Rate expectations polling question (second chart), 23 participants responded. For the sector performance expectations polling question (third chart), 17 participants responded.

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