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Mid-Year Outlook 2024

A strong economy in a fragile world

MID-YEAR OUTLOOK 2024
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Companies have shrugged off higher rates. Yes, geopolitical risk is real. But the economy is stronger than you think. AI is just starting. Stocks could move higher. Embrace the rally.

A Strong Economy

Healthiest economy in decades? It looks that way

What’s wrong with this picture? Not much. Key macro and market variables—growth, unemployment rates, household incomes, corporate profit margins, yields on government bonds—look as healthy as they have in decades. Investors may consider equities and real assets to mitigate inflation risk. Bonds can bolster portfolios if economic growth falters.

It’s not a dream: AI can power productivity

It took 15 years for the personal computer to increase the economy’s productivity. AI could do it in seven. Today, less than 5% of U.S. companies are actively using AI. But the potential use cases span almost every industry. 

In a Fragile world

Should you hedge geopolitical risk—and if so, how?

When tensions flare, equity markets react. But the impact usually doesn’t last. Still, gold has been especially effective for tactical investors looking for a hedge. It has historically rallied just before and during geopolitical events. Adding to gold’s appeal: Central banks have recently been increasing their purchases.

Elections won’t solve the growing U.S. deficit

Whichever candidate becomes U.S. president in November, the federal debt and deficit probably won’t be winners. Both will likely deteriorate further. In the near term, bond market volatility could spike. To reduce the debt burden over the long term, we don’t see a way around higher taxes. U.S. investors need to prioritize tax efficiency.

Global Perspectives

2024 Mid-Year Outlook Webcast

Descriptive audio

Chart description (1): The chart describes total employee compensation growth. For the Japan line, the first data point came in at 1.35% in Q1 2005; it went flat and dropped to a low point at -6.2% in Q2 2009. Then it came back up and stabilized with the last data point coming in at 2.1% in Q1 2024. For the Euro Area line, the first data point came in at 2.8% in Q1 2005; it went flat and slightly upward until it dropped to -0.99% in Q3 2009. Then it picked up again, but dropped precipitously to -6.99% in Q2 2020. It then came back up, and the last data point came in at 6% in Q4 2023. For the United States line, the first data point came in at 5.9% in Q1 2005; it went flat and bottomed to -4.1% in Q1 2009. Then it went back up and peaked at 6.33% in Q4 2012. Then it went flat and briefly dropped before going to a new peak at 12.1% in Q2 2021. The last data point came in slightly lower at 5.6% in Q1 2024.

Chart description (2): The chart describes S&P 500 performance in different inflation regimes (1950–2024), %. For 0–2%, the bar is at 10.7%. For 2–3%, the bar is at 13.8%. For 3–5%, the bar is at 8.7%. For >5%, the bar is at 2.4%.

Chart description (3): The chart describes years from innovation to productivity growth for innovations, including steam engine, electricity, PCs/internet, and AI. It's displayed in the format of a bar chart. For the steam engine bar, it’s showing 61 years from innovation to productivity growth. For electricity, it’s 32 years from innovation to productivity growth. For PCs/internet it’s 15 years from innovation to productivity growth. For AI, it’s estimated to be around seven years from innovation to productivity growth.

Chart description (4): The chart describes highest quintile of free cash flow margins, forward P/E ratio relative to the same cohort in large-cap stocks. The first data point came in at 0.58x in February 1976. Then it went all the way up and peak at 1.72x in November 1983. Then it came back down and bottomed at 0.53x in January 2000. It then spiked to a new peak at 1.62x in April 2009. Then it came down all the way with the last data point coming in at 0.74x in April 2024.

Chart description (5): The chart describes cumulative performance since January 2022, %. For the MSCI Germany Small Cap line, the first data point came in at 0% in January 2022. Then it went down all the way and bottomed at -45.9% in September 2022. Then it bounced back and stabilized at low level and ended the series at -27.8% in April 2024. For MSCI World, the first data point came in at 0% in January 2022. It came down and bottomed at -26.5% in October 2022. Then it went up and the last data point came in at 3.6% in April 2024. For MSCI Germany, the first data point came in at 0% in January 2022. It then came down and bottomed at -30.4% in September 2022. Then it went up and the last data point came in at 0.7% in April 2024.

Chart description (6): The chart describes trade reliance in % terms. For Europe reliance on Russia for energy (pre-Ukraine invasion), the bar is at 22%. For global reliance on China for lithium batteries, the bar is at 76%. For global reliance on Taiwan for advanced chips, the bar is at 92%.

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Key Risks

The price of equity securities may rise or fall due to the changes in the broad market or changes in a company's financial condition, sometimes rapidly or unpredictably. Equity securities are subject to "stock market risk" meaning that stock prices in general may decline over short or extended periods of time.​

Investment in alternative investment strategies is speculative, often involves a greater degree of risk than traditional investments including limited liquidity and limited transparency, among other factors and should only be considered by sophisticated investors with the financial capability to accept the loss of all or part of the assets devoted to such strategies.​

Investments in commodities may have greater volatility than investments in traditional securities. The value of commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Investing in commodities creates an opportunity for increased return but, at the same time, creates the possibility for greater loss.​

Bonds are subject to interest rate risk, credit and default risk of the issuer. Bond prices generally fall when interest rates rise.​

Small capitalization companies typically carry more risk than well-established "blue-chip" companies since smaller companies can carry a higher degree of market volatility than most large cap and/or blue-chip companies.​

International investments may not be suitable for all investors. International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the U.S. can raise or lower returns. Some overseas markets may not be as politically and economically stable as the United States and other nations. Investments in international markets can be more volatile.​

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