2024 Global Market Outlook Midyear Update

Investors moving out of cash may favour equities and short duration bonds

Asset Allocation

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A vast amount of money is hanging over U.S. financial markets in money market funds and other short‑term liquid instruments. Evidence from past economic cycles suggests that this strong liquidity preference will ease at some point, especially if the U.S. avoids a deep recession.

As concerns over a hard landing for the U.S. economy have receded, focus has shifted from recession risk to inflation risk. This will impact where investors seek to allocate their money. Historically, bonds—particularly longer-dated bonds—have been an excellent hedge against recession but a poor hedge against inflation. During rare periods when inflation has turned negative due to sharp economic downturns, bonds have outperformed stocks.

U.S. investors are flush with liquidity
Money market fund assets are highly elevated

As of April 1, 2024.
Source: Investment Company Institute.

“Evidence from past economic cycles suggests that this strong liquidity preference will ease at some point, especially if the U.S. avoids a deep recession..”

Tim Murray, CFA, Capital Markets Strategist,Multi‑Asset Division

Energy stocks may offer best hedge against inflation

Stocks have tended to perform best during periods of low, moderate, or even slightly elevated inflation. But they have typically dipped sharply during recessions and have also weakened when inflation has moved to very high levels. However, energy sector stocks have historically performed quite well during periods of very high inflation. These patterns suggest that one way to hedge against inflation risk would be to tilt portfolios to stocks, with an emphasis on the energy sector and other commodity‑oriented equities.

Investors are also likely to turn to shorter‑term bonds given attractive yield levels available and the potential for price appreciation if yields move lower. Short‑term bonds are highly valued during uncertain periods—such as the present—as they are less exposed to interest rate changes than longer‑dated bonds. They also provide the potential for higher returns than cash while being almost as flexible. This flexibility may be useful given uncertain economic and market conditions.

Nikolaj Schmidt,
Chief Global Economist

Ken Orchard,
Head of International Fixed Income

Peter Bates, CFA
Portfolio Manager, Global Equities

Tim Murray, CFA
Capital Markets Strategist,
Multi‑Asset Division

Global Market Outlook Midyear Update insights

2024 Global Market Outlook Midyear Update

How central bank policy could impact your portfolio

Active Investing

Shifting market conditions will favour active management

Tactical views

Expectations of central bank policy have shifted since the beginning of the year. What factors will shape the path of rate cuts in the second half of 2024?

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