Conference Presentation, Fireside Chat, Interview
Hedges, privates and tax alpha: How investors are navigating record-high markets
- U.S. equity markets are projected to finish 2024 strong with year-to-date gains of 10% and earnings growth of approximately 8%, though valuations remain a constraining factor relative to historical levels.
- The economy is expected to maintain growth with unemployment below 4% for over two years, supporting rising wages and retail balance sheets, while the unconditional probability of a recession for any given year stands at 15%.
- Interest rate cuts by the Federal Reserve are anticipated to begin in the second half of the current year, followed by a measured pace of reductions throughout 2025, with 10-year bond yields anchoring around 4%.
- Corporate credit, including investment grade and high yield, is viewed as an attractive return prospect relative to equities due to the low recession probability, while 45% of clients expect positive market performance over the next year compared to 33% anticipating negative conditions.
- Negative client sentiment is driving acceleration in the structured notes market, which has grown to over $100 billion annually in the U.S. over the past five years.
- U.S. tech companies are expected to remain private for an average of four years longer than they did two decades ago, becoming six times larger upon eventual public listing, making the private equity market a significant source of alpha.
- Independent Registered Investment Advisors (RIAs), whose managed assets have grown from $8 billion to $80 billion, are expected to seek partnerships with technology providers and large institutions to scale practices and prioritize access to new asset classes.
- Individual clients are increasingly demanding tax-efficient portfolios designed to deliver tax alpha alongside investment alpha to manage returns in line with indices.