Stark Differences Beneath the Surface

Over the past week, the macroeconomic picture has grown even more complex. While inflation has fallen significantly from its peak over the last year, it remains above the central banks’ targets in the U.S., Europe, and Norway. At the same time, new data suggests a potential turning point in inflation: energy prices and geopolitical tensions are once again driving inflation expectations upward.

This is reflected in interest rate trends. The Federal Reserve maintains its policy rate around 3.5–3.75%, with limited room for cuts, while the European Central Bank (ECB) remains largely in wait-and-see mode. In Norway, Norges Bank signals that the current 4% rate will likely need to rise further to rein in inflation. The consensus among major players like Goldman Sachs remains cautious, with expectations of limited rate cuts—but markets are increasingly pricing in the risk of higher rates for longer.

On the surface, equity markets have appeared resilient, but beneath lies significant divergence. While global indices seem to have held up relatively well over recent months, the disparities below the surface are far greater. Tech stocks have corrected downward by 5–20% so far this year, the Norwegian krone has strengthened by 5–6%, and defense stocks have surged by 20%.

Particularly, "quality" and segments of "value" have fallen out of favor. Several well-regarded active funds have faced a challenging period—for example, Skagen Global (-13%) and Odin Global (-10%). This reflects a market where factor and style differences have dominated: "growth" and index-hugging strategies have performed significantly better than more disciplined, fundamental approaches.

In Norway, these differences are even more pronounced. High exposure to oil and gas has led to substantial divergence between funds and indices, illustrating the challenges of active management in a narrow, commodity-driven market.

Looking ahead, the macroeconomic outlook is marked by uncertainty. Many foresee a scenario of continued nominal growth but persistent inflationary pressures—a combination that could lead to higher and more volatile interest rates than markets have been accustomed to in the past.

In this landscape, diversification is key. While the "world in NOK" is down over 6% year-to-date, a disciplined and broad approach has delivered results around break-even or better. In a market characterized by significant style differences and heightened macroeconomic uncertainty, this must be considered a strong outcome.

On the positive side, there is strong motivation within the U.S. administration to end conflicts far from American soil and to bring down inflation. This should normally lay the groundwork for improved macroeconomic conditions in the rest of the world in the coming months.