2024 | Quarterly Outlook | Fundamental Equity

Building on momentum

The proverbial ‘wall of worry' looks less daunting as we enter Q2 with the US economy continuing to show resilience and Europe’s economy appearing to have bottomed out and inflation down, if not out. At the end of last year this seemed to be a bull market running on euphoria over AI but this quarter broader strength has developed, with record index highs being hit in Europe also.

The view that there will be a sting-in-the-tail of higher rates or that the weak commercial property sector will drag the financial system, and then the wider economy, into a slump, is now a minority one. It’s so far, so good in 2024, and the market is raising year-end targets. We are now about to move into the dovish period of the cycle, albeit it at a slower pace than anticipated by investors. The recent interest rate cut by the Swiss central bank confirms that view.

In emerging markets, many central banks are lowering interest rates. Brazil for instance passed its sixth cut. With inflation falling in tandem, it allows even more room for policy relaxation. Is this all too good to be true? I don’t think so, and believe emerging markets can do really well this year.

Looking at the global election cycle from a financial markets’ point of view, it’s all been smooth so far and in Q2 I don’t expect any surprise from India either. Of course the big one all investors are watching is in November in the US. Whoever wins, the stock market promises a good place to be with both Biden and Trump likely to pursue expansionary fiscal policies into a monetary easing cycle. That makes any coming correction, even a steep one, look like an opportunity.

In this edition of the Quarterly Outlook I give you my thoughts for developed and emerging markets alongside a contrarian view on Japan real estate.