2024 Global Market Outlook Midyear Update

US stocks face a broadening, not a rotation

US Equities

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In recent years, the U.S. stock market has been dominated by the “Magnificent Seven” technology stocks, but there are signs this once‑monolithic group of large‑cap growth firms is beginning to fragment. The outperformance of the Magnificent Seven propelled the S&P 500 to new highs earlier this year and resulted in the index becoming concentrated to an unprecedented degree.

Performance within the group is now diverging, however— as of late May, NVIDIA, Meta, Microsoft, and Amazon have continued to outpace the market, while Apple, Alphabet, and Tesla have begun to lag. As the benefits of AI technology are unlikely to be evenly spread among the members of the Magnificent Seven, further dispersion within the group can be expected.

Fewer cuts should favour value stocks

Meanwhile, value stocks could be primed for a come back as investors seek to diversify their exposure beyond the Magnificent Seven, particularly given growing expectations that the higher rate environment will persist. If the Fed only makes a few cuts or does not cut at all, value companies should benefit as they have tended to be more rate-sensitive and have typically fared better in a world where interest rates remained higher for longer. And while value stocks have begun to perform better in recent months, they continue to trade at a significant discount to growth stocks. If conditions continue to favor value stocks—as we believe they will—the dominance of growth stocks may start to fade.

Past performance is not a reliable indicator of future performance and is subject to change.

Value stocks look poised for earnings resurgence
(Fig. 5) Estimated earnings per share of value stocks set to outstrip growth stocks later this year

As of May 13, 2024.
Source: FTSE Russell (see Additional Disclosures).
Actual outcomes may differ materially from estimates.
Each time period shows the estimated year-over-year change in quarterly earnings for growth and value stocks for each quarter this year.

Small‑cap stocks are trading at a major discount to larger companies after struggling for several years against high inflation and a steep rise in borrowing costs. While the persistence of a higher rate environment could limit the upside of small‑cap stocks, the earnings of smaller firms should improve if rates come down.

A widening opportunity set

Although we believe that value—and possibly small‑cap—stocks may begin to challenge the dominance of large‑cap growth stocks, it is important to stress the difference between a broadening of the market’s opportunity set and a rotation between market styles, sectors, or capitalisation. We are not predicting the imminent demise of the Magnificent Seven—rather, we anticipate a continued broadening of opportunities to include more companies and sectors across the market that may have lagged in recent years.

“...we anticipate a continued broadening of opportunities to include more companies and sectors across the market that may have lagged in recent years.”

Peter Bates, CFA, Portfolio Manager, Global Equities

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

International Equities

International stocks still appear to be good value

Asset Allocation

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

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T. Rowe Price cautions that economic estimates and forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time. Actual outcomes could differ materially from those anticipated in estimates and forward-looking statements, and future results could differ materially from any historical performance. The information presented herein is shown for illustrative, informational purposes only. Any historical data used as a basis for this analysis are based on information gathered by T. Rowe Price and from third-party sources and have not been independently verified. Forward-looking statements speak only as of the date they are made, and T. Rowe Price assumes no duty to and does not undertake to update forward-looking statements. Where securities are mentioned, the specific securities identified and described are for informational purposes only and do not represent recommendations.

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