Interview
2024 midyear outlook: building portfolios for a more volatile macroeconomic backdrop
- Macro conditions in the second half of 2024 are projected to be more difficult than the first half, accompanied by higher volatility and a reassertion of inflation via CPI, PPI, and spot data rolls.
- The Federal Reserve is anticipated to implement non-recessionary rate cuts, contingent on inflation relief from negative economic data, though high rate volatility is expected to persist throughout the remainder of the year due to data dependence.
- Risks include a feared vicious cycle between financial conditions and growth, policy levers potentially shifting toward highly inflationary conditions through trade wars, and election surprises in the UK and the US in November.
- Economic recessions are not considered certain despite unfavorable late-cycle scenarios, as the economy is not viewed as too vulnerable to a large drawdown.
- Europe is expected to offer valuation and restructuring opportunities with expanding earnings breadth over time, while Japan is projected to provide a structural investment story driven by better ROEs, valuations, and government desires for real inflation.
- Copper supply is forecast to decline over the next couple of years, creating demand for term premiums as the yield curve steepens to reflect inflation and supply risks.
- Near-term hedging is anticipated to be inexpensive due to low volatility levels, particularly in FX, while investors are advised to remain agile and monitor data momentum rather than fearing late-cycle backdrops.
- Over a five to ten-year horizon, a balanced portfolio comprising roughly 60% equity and 40% bonds is expected to remain robust, with specific tilts toward growth equity and inflation-protected assets.