Our midyear 2024 investment outlook

When we look at the investment environment at the midpoint of 2024, we see two main trends. First, markets have now priced in the impact of fewer than expected Federal Reserve interest rate cuts. Second, equity valuations are expensive overall but could be justified by the underlying solid strength of the U.S. economy.

Looking in the Rearview Mirror

The first six months of the year delivered positive returns for U.S. investors. But those returns came from unexpected places: Equity markets delivered a solid performance with the S&P 500 Index up 14.5%, while bond market returns were disappointing in aggregate despite expectations that the Federal Reserve would be easing monetary policy (Source: Bloomberg).

Chief Investment Officer Thierry Hasse

Investors had expected 2024 to be the year when bond markets finally would take the spotlight from equity markets. At the end of 2023, market participants were pricing in a total of six interest rate cuts for 2024.

However, persistent elevated inflation readings during the first quarter were responsible for a sharp rise in government bond yields across all maturities. The S&P U.S. Aggregate Bond Index, designed to measure the performance of publicly issued U.S. investment-grade debt, was essentially flat year to date with a -0.22% return (Source: S&P Global). In effect, the coupon earned during the first six months of the year offset the negative price action.

Financial markets are now fully aligned with the Federal Reserve Summary of Economic Projections released on June 12, 2024, which called for one or two interest rate reductions of 25 basis points by the end of the year, assuming inflation resumes its path toward the 2% target.

Given the persistent U.S. budget deficits and the ever-increasing issuance of U.S. government debt, our fixed income investment choices at Elevage Partners remain defensive. We favor short duration maturities which offer yields in the 5% range with limited interest rate risk.

Can Positive Stock Market Trends Continue?

The technology sector was the big reason behind stock market performance in the first half of the year, thanks largely to trends and further development in artificial intelligence. With the economy poised to grow at a solid 2% to 2.3% annually, the unemployment rate staying around 4% for the foreseeable future, and inflation gradually returning to 2% (Source: Federal Reserve Summary of Economic Projections) the investing environment remains very supportive for U.S. corporations to continue earnings growth.

This positive background should also lead to a broader positive stock market performance for companies outside the tech sector. We believe a number of areas of the economy – including the energy, healthcare and financial sectors – are poised to have solid earnings growth in the second half of the year.

Meanwhile, the Covid-19 pandemic and its aftermath have brought about extraordinary changes in the market landscape. These changes have created a palette of attractive investing options.

Risk and Reward – and Your Plan

When looking at their investment portfolios, investors need to be honest about their risk tolerance. That’s not always an easy thing to do. In fact, it can be quite the opposite. Sometimes your feelings about risk and reward are hard to articulate. This is one of the reasons why we utilize questionnaires to help clients understand their risk tolerance. The questions help interpret how you might feel while watching the market rise or fall. Then it’s our job to help ensure that your financial plan adequately guides investment decisions that support the your stated objectives, timelines, and, yes, your personal risk tolerance.

Do not hesitate to reach out to us with any question on the financial markets or to review your portfolio to ensure that it matches your risk tolerance and investment horizon.

Regards,
Thierry Hasse, Chief Investment Officer


The information contained herein represents the views of Elevage Partners at a specific point in time and is based on information believed to be reliable. No representation or warranty is made concerning the accuracy of any data compiled herein In addition, there can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Any statement non-factual in nature constitutes only current opinion which is subject to change. These materials are provided for informational purposes only and do not constitute investment advice. Any reference to a security listed herein does not constitute a recommendation to buy, sell, or hold such security. Past performance is no guarantee of future results. The historical returns of any securities and/or sectors mentioned in this commentary are not necessarily indicative of their future performance.