Mid-Year Market Outlook

The investment landscape has proved remarkably resilient thus far in 2024 given several headwinds including inflation, interest rates, and the unsettled geopolitical situation. Fortunately, employment remains solid, and companies continue to deliver improved profit growth. Optimism abounds over the potential benefits of AI, while the liquidity spigots remain wide open, providing support to consumers, businesses, and risk assets.

In this report, we review the contributing factors relative to policy, the economy, interest rates, and corporate profitability, as well as their implications for economic and market growth.

Executive Summary

  • Policy – Monetary policymakers have remained on the sidelines, while Treasury has provided sufficient liquidity to help offset the impact from quantitative tightening this election year.
  • Economy – Signs of moderation are emerging, yet we continue to look for real GDP growth of ~+2.0% with inflation hovering in the 3.0% range this year.
  • Fixed Income – The U.S. Treasury Yield Curve continues to point toward recession, though no other data points support this conclusion. Consequently, bond investors face volatility as the benchmark 10-year Treasury note could break either way, depending on fears of inflation/deficit spending, or geopolitics/ economic slowdown. Fortunately, corporate credit spreads support soft landing scenario.
  • Equities – Market technicals indicate the S&P 500® can climb to the 5,550 range in coming months. However, a review of equity market fundamentals suggests that the upside technical target may be difficult for the Index to sustain without improved support from interest rates and corporate earnings. Remember, the “E” must substantiate the “P” when considering valuation.

We believe a balanced approach at this point in the cycle will help protect investors from the market risks associated with interest rates, geopolitics, and extent of the expansion.

We’ll reassess our forecasts after second quarter earnings season and will publish further thoughts on the presidential election following the political party conventions later this summer.