In our view, higher inflation, firmer interest rates, and diminishing liquidity are positioning the U.S. for an economic soft patch. As we reach the midpoint of 2024, investors are asking whether inflation will move low enough for the Federal Reserve to cut interest rates, as well as when the economy and earnings will pivot from slowing to more sustained growth.

Timing these turnarounds is always challenging, but we can help investors position portfolios for the slowdown we anticipate and watch for early signs of an economic and earnings upturn.

Our 2024 Midyear Outlook serves as a guide to navigate the changing environment. In the near term, we favor a focus on quality, especially in equity and fixed income markets, but we also look for a broader set of opportunities as the economic pivot point approaches.

In equities, as the economy continues to slow, we favor high-quality U.S. large caps over mid-cap and small-cap, and international equities.

We believe a corporate profit recovery is likely in 2025, and later this year, equity prices should begin to anticipate the turning point to stronger and more sustained earnings growth. For this reason, we view periods of equity market weakness as opportunities for selective buying.

In the bond market, we expect U.S. short-term taxable fixed income to continue to perform well, as the Federal Reserve slowly and deliberately initiates interest-rate cuts later this year. Also, we think municipal bond credit fundamentals remain favorable for investors in higher effective tax brackets. For now, we remain neutral on intermediate and long-term fixed-income securities.

In Real Assets, we believe commodity prices, which have stalled since mid-2022, should start to rise again. We are maintaining our favorable view of this asset class.

Finally, in the alternative investment space, given the continued uncertainty in the economy and markets, we favor hedge-fund and private-capital strategies that are more defensive and generally do not move in tandem with traditional stock and bond markets. As the economy recovers, we will look to transition to more directional strategies, including Long/Short Equity and Activist Equity categories.

For more specific guidance across asset classes, sectors, and industries, as well as our top five portfolio ideas, please read our special report: 2024 Midyear Outlook: Approaching the economy’s pivot point.