What can we expect for our investments in the second half of 2024?
As we enter the second half of 2024, it’s a good time to assess what may lie ahead for investors.
At the start of 2024, many commentators were anticipating a slowdown in the global economy and expecting Central Banks to reduce interest rates in response. However, as the months have passed, the likelihood of a US recession (and the impact that would have globally) has reduced. So far this year, unemployment has remained at modest levels and wage growth has generally been higher than inflation. This has boosted real incomes and consumer demand.
As a consequence, the fall in inflation has slowed and interest rates have been kept at higher levels, in contrast to market expectations. However, the overall strength of the global economy has more than offset concerns about fewer interest-rate cuts in the remainder of 2024.
Growth is expected to pick up for UK and Europe
Indications for global growth look reasonably positive. The UK and Europe both appear to have turned a corner, with growth expected to continue picking up through 2024 and 2025, albeit from a low level. Due to shortages of labour, wages continue to grow meaningfully higher than inflation. This, along with interest rates beginning to come down, is likely to feed through into stronger consumer spending.
Meanwhile, the outcome of the recent UK election has given Labour a very strong mandate to reshuffle existing spending and taxation priorities. Whether this encourages more investment to support the UK economy will depend on details that are yet to be shared.
A modest slowdown for the US
The expectation is that the US will experience a modest slowdown as higher interest rates have begun to bite. This is partly due to people finally having spent their pandemic savings and job openings reducing to more normal levels. However, providing US inflation continues to fall, a cooling US economy would make interest-rate cuts more likely and that should be a positive backdrop for global financial markets.
While the US economy is slowing, it is still expected to grow at a faster pace than Europe or the UK. The Presidential election adds to uncertainty as there is a possibility of Donald Trump returning to the White House. If that happens, he cannot repeat the policies of his first term by further cutting taxes. He may reduce or end support for Ukraine and could introduce stringent import tariffs, with potentially significant consequences for global markets and the wider economy.
Another factor is the recent dominance of the ‘Magnificent Seven’ (the largest US tech companies) which have driven recent stock market gains. Whilst these enormous businesses are generally extremely profitable, the risk of periodic disappointment rises with investor expectations, against what is now a very high bar.
Issues for China leads to opportunities for other emerging markets
China looks set to see its recent export boom challenged and this could impact its growth outlook at a time when domestic consumer spending remains weak and the property market continues to contract. Tariffs on various Chinese exports have been announced by the US, Europe, Turkey, and Latin American countries. This is likely to increase pressure on Beijing to not only retaliate but also to provide stimulus for its economy in other ways, such as interest-rate cuts. However, China’s challenges are providing opportunities for other countries in the emerging markets sphere, with supply chains often shifting in their favour.
A role to play for fixed income investments
At the beginning of the year, the expectation was for several interest rate cuts by Central Banks. However, the US Federal Reserve and the Bank of England have delayed rate cuts, with a current expectation of perhaps two interest rate cuts in the second half of the year. When interest rates fall, the value of Fixed Income investments rises.
A reasonable outlook for investors
Overall, the current outlook is reasonably positive for investors for the second half of 2024 and beyond. This is due to an expectation that inflation in developed markets will fall in the months ahead and interest rates will eventually come down. This will reduce economic headwinds and typically boost the value of financial assets. With that in mind, we are optimistic about the remainder of 2024, whilst remaining mindful of ongoing risks.
The information provided in this paper does not constitute advice which can only be provided after a full appraisal of your circumstances, needs and objectives. Action should not be taken or refrained from based on the contents of this paper alone. Individuals should consult with their advisers before taking positive action.
The value of investments, and any income they produce, can fall or rise and you may not receive back the full amount of your investment. Past investment performance is not a reliable indicator of future performance.
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