While the Federal Reserve joined the rate-cutting party in mid-September, competing narratives about the path of the US economy and inflation remain.

A more bearish viewpoint likely would suggest that tariff-related inflation pressures have yet to fully work their way through the system. Corporations likely will begin to pass along a larger share of higher prices to consumers as margins continue to compress, however, further weighing on lower-income consumers already feeling the effects of a sluggish “no-hire/no-fire” labor market. The Fed’s hands tied by persistent price pressures the potential for stagflation emerges amid faltering corporate earnings.

The outlook abroad, in contrast, appears less path dependent. With price multiples more consistent with historical averages and visible catalysts for earnings growth, a number of non-US markets, in our view, may present attractive alternatives for equity investors.

In Europe, for example, increased defense spending across the continent should bolster growth broadly. Notably, Germany has taken steps to leverage its fiscal space by permanently exempting defense spending from its constitutional debt brake and creating a €500 billion infrastructure fund; leading companies subsequently pitched in with a “Made for Germany” investment drive worth at least €100 billion by 2028.¹ In Asia, corporate reform in Japan continues apace and Korea more recently has introduced its own plan to improve governance. Certain emerging markets, meanwhile, are demonstrating classic outperformance amid Fed easing and the potential for a reemergence of the carry trade in the face of softer US dollar.²

The recent executive order by the White House to open the door to alternatives in 401(k) plans is seen as a boon to asset classes like private equity, private credit, and private real estate. Private market assets, like private equity and credit, provide exposure to a larger investible market—only an estimated 1% US companies are publicly traded—so alternatives may provide 401(k) participants access to similar investment opportunities of other fiduciary-managed plans like larger pension funds and cash balance plans.¹ Privates may also potentially offer excess return per unit of risk and an ability to steadily compound returns over longer periods of time. While private market assets are considered “riskier” than the public markets assets, parts of the private credit market, like senior secured direct lending, may offer investors equity-like returns with less risk than stocks, which may have applications in managed solutions like target date funds and public/private-blended strategies.

While alternatives do offer potential opportunities, the Employee Retirement Income Security Act (ERISA) of 1974 requires employers of defined benefit contribution plans to always act in their employees’ best interests. Therefore, it is incumbent upon plan sponsors, consultants and financial professionals to reexamine criteria about suitable investments within their plans and then thoroughly evaluate the specific risks, like leverage, complexity, lack of transparency, higher fees and, in some instances, lack of liquidity, of each type of alternative investment. This process should enable the fiduciaries to make sound decisions when selecting strategies that may be additive and appropriate for plan participants.