Mid-Year Market Insights 2024
At mid-year 2024, surprise and opportunity are the hallmarks of this year’s economic forecast. While doom and gloom predictions have recently seemed to dominate headlines, the actual story is one of resilience and growth. Many investors spent 2023 braced for a downturn, but the global economy ultimately showed remarkable strength. Higher incomes and low unemployment have supported consumer spending, and businesses have managed costs and pricing to convert these higher sales into healthy profits.
Our 2024 Mid-Year Market Insight dives into the reasons behind this economic stamina. By analyzing broad market trends and specific investor behaviors, we’ve uncovered insights that illuminate paths forward in this dynamic environment. From the surging potential of artificial intelligence (AI) in public equities to the hidden gems in private markets.
While living costs have stopped climbing as quickly as in previous years, inflation will likely remain above historical levels due to high labor demand supporting wage growth and limited housing availability supporting real estate prices. This new range of 2%–3% annual inflation won’t be enough to prompt central bank interest rate hikes but will keep policymakers cautious. Bonds should continue to offer attractive absolute yields as long as economic growth persists and policy rates remain above inflation.
The technological revolution around AI is only just getting started. Jamie Dimon, JPMorgan Chase Chairman and CEO, has compared AI to huge historical advancements – such as the discovery of electricity and the invention of the internet. Integrating AI into various sectors will likely enhance productivity and output at unparalleled speed. In fact, rough early estimates show that if half of vulnerable jobs become automated through AI, the cumulative U.S. labor productivity benefits could equal nearly $5 trillion. The potential opportunity here is compelling.
Generally, there is still opportunity across equities. Large corporations have demonstrated their ability to pass through rising supply costs to consumers to maintain profit margins. We expect continued earnings growth to support higher valuations. However, smaller companies with relatively higher debt loads face more challenges from rising interest rates and labor costs. This presents ample opportunity for active managers to identify quality small and mid-cap companies with the discipline to capitalize on the available economic opportunity.
The upcoming U.S. presidential election offers a uniquely predictable backdrop for markets. However, neither leader is expected to tighten the fiscal purse strings, which may present longer-term economic challenges around the deficit. On the global stage, rising tensions could impact crucial commodity markets like oil and natural gas. However, the actual impact on living costs should be less dramatic, thanks to strategic reserves and robust production capabilities.
This year’s investment landscape looks promising despite the swirl thanks to a backdrop of solid economic activity and manageable price increases. By understanding these broader trends and staying informed, investors can strategically position themselves to potentially take advantage of the opportunities that lie ahead in both public and private markets.