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2024 Global Market Outlook Midyear Update
How central bank policy could impact your portfolio
At midyear, expectations for rate cuts have been pushed out further, with far fewer anticipated, and markets have repriced accordingly. We anticipate growth in the global economy. While the U.S. economy remains strong, leading indicators suggest that the narrative of U.S. exceptionalism may fade. We see continued market broadening, with select equity and fixed income opportunities. Most importantly, the ongoing transition from the low-rate post-GFC environment to one characterised by higher interest rates may provide favorable conditions for active managers to outperform.
Video
Summary with Investment Specialist Ritu Vohora
Investment Specialist, Capital Markets, Ritu Vohora, summarises some of the key themes that have been discussed during the 2024 Global Market Outlook Midyear Update webinar that took place on Wednesday 19th June.
Higher for longer has become the consensus
Most developed market central banks are walking a tightrope amid reaccelerating inflation. The Federal Reserve is likely to make fewer cuts, while we believe the European Central Bank will cut between 1-3 times. We expect Japan to gradually tighten its monetary policy.
Key takeaway
The Fed is more likely to surprise with fewer cuts than with more.
Opportunities broaden beyond the “Magnificent Seven”
We believe artificial intelligence will create long-term winners, but stock selection is key as performance of the mega-cap tech stocks begins to fragment. We anticipate a continued broadening of opportunities to include more companies and sectors that may have lagged in recent years. We believe that value—and possibly small-cap—stocks may begin to challenge the dominance of large-cap growth stocks.
Key takeaway
Now may be the time to diversify into areas that have valuation support and robust fundamentals, such as value stocks.
Value stocks look poised for earnings resurgence
Estimated earnings per share of value stocks set to outstrip growth stocks later this year
As of May 13, 2023
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.
Rising capital expenditure should benefit value sectors
In contrast to the U.S. market’s heavy exposure to growth stocks, the international market is more exposed to value-oriented sectors, including financials, materials, industrials, and energy. Supply chain diversification, infrastructure rebuild, defense spending, and the likelihood of higher energy prices should favour traditional value
sectors as capital spending accelerates.
Key takeaway
We continue to favour Japan and see select opportunities in emerging markets, such as South Korea and Vietnam.
Uncertain environment favours short duration bonds
Short-term bonds are highly valued during uncertain periods—such as the present—because they are less exposed to interest rate changes than longer-maturity bonds. They also provide the potential for higher returns than cash while being almost as liquid, which can be useful during periods of economic uncertainty.
Key takeaway
We have a preference for short duration bonds. While credit spreads are tight, all-in yields look attractive, with the potential for price appreciation if yields move lower.
Currently, we are overweight high yield and emerging market debt.
Energy stocks and commodities could help hedge against inflation
Stocks have typically dipped sharply during recessions and also weakened when inflation is at higher levels. However, energy sector stocks have historically performed quite well during periods of very high inflation. This suggests that one way to hedge against inflation risk would be to tilt portfolios toward stocks in the energy sector and other commodity-oriented equities.
Key takeaway
Sticky inflation could inflect higher as global growth broadens. Commodity-oriented equities may offer an effective way to navigate inflation risk.
2024 Tactical allocation views
As of 31 May, 2024
Investment professionals from the T. Rowe Price Multi-Asset Division presents their views on the relative attractiveness of asset classes and subclasses over next 6 to 18 months.
Earnings continue to strengthen, but face elevated expectations. Potential for broader market participation as economic growth improves, commodity prices increase, and consumer spending remains resilient.
Yields remain attractive but volatility could persist due to global divergence in growth, inflation, and central bank expectations. Credit fundamentals remain supportive; however, spreads remain tight.
Continues to offer attractive yields as the yield curve remains inverted, and continues to offer liquidity should market opportunities arise.
Sign up to receive our monthly Global Asset Allocation Viewpoints from our Investment Committee
Each month, our Investment Committee prepare a report revealing the two market themes they are watching, their bull and bear views per region and their latest asset class over and underweights.
It has been designed to aid you in your decision making and client conversations.
Views are the opinions of the Global Market Outlook Midyear Update authors as of June 7, 2024.
202406-3600951