Outlook 2H 2024
Executive summary
We favour a more balanced positioning across and within asset classes. We believe that bond yields, including those on government bonds – something new for this segment – are attractive. Credit carry is attractive relative to corporate fundamentals, while long-dated government bonds offer protection in more difficult times in addition to their real yield.
Favourable economic data and the prospect of interest rate cuts, i.e. the ingredients of the soft-landing narrative, together with solid quarterly earnings, justify a constructive stance on equity markets. However, we would like to see a broader participation in the market rally to reduce the fragility of the bull cycle that started in early 2023.
While maintaining an allocation to the technology sector and the famous seven giants, we are balancing our portfolios with exposure to small/mid-caps and the value style, where valuations appear to offer significant catch-up potential.
Economic Outlook
Real GDP forecasts lowered for the US and Japan. China and euro area upgraded
Monetary easing becomes more widespread
Fed and Bank of England will remain on hold until September and August, respectively
FOMC dot plot implies only one 25 bps cut by year-end and four in 2025
Fannie Mae predicts that US mortgage rates will average 7% in 2024
Key Risks
Sharper slowdown in the US as labour market deteriorates sharply
US/China and EU/China trade war intensifies
Sovereign debt crisis forces governments to cut spending
Populist drift at the ballot box, testing the foundations of our democracies
Investment Convictions
Fixed income generally does well when the Fed pauses
Long-dated government bonds as a hedge against renewed recession fears
Inflation dynamics favour European over US rates (10-Year +)
EM corporate bonds offer wider spreads and diversification benefits
Prefer EU Fantastic Five to US Magnificent Seven
Small/Mid-Caps offer compelling valuation and economic sensitivity
Add value stocks for their relative valuation and diversification
Table of contents
- OUTLOOK 2024
- A BRIEF REVIEW : THE FIRST HALF OF 2024
- MID-YEAR OUTLOOK
- INVESTMENT CONVICTIONS : THE SECOND HALF OF 2024
- ASSET CLASS VIEWS – 2H 2024 : SHIFTING TO NEUTRAL