J.P. Morgan Private Bank released its 2024 Mid-Year Outlook, A Strong Economy in a Fragile World, which defines the most important considerations for investors amid this complex environment.
“Despite global inflation not falling as quickly as forecasters may have hoped, the global economy looks remarkably strong, defying the pressure of higher interest rates,” said Grace Peters, Global Head of Investment Strategy at J.P. Morgan Private Bank.
“However, we note that the world is at a delicate juncture. On the one hand, higher growth, higher bond yields and higher equity valuations. On the other hand, higher inflation, higher geopolitical risks and potentially higher taxes.”
“Despite these challenges, we think positive forces can power markets forward in 2024. The global equity rally can broaden beyond the U.S. and mega market cap stocks.”
To navigate the global economic and investment landscape, J.P. Morgan Private Bank’s 2024 Mid-Year Investments Outlook highlights five important themes.
The economy is stronger than you think
The Federal Reserve continues to hold steady until inflation falls further, but other central banks have already started to cut rates. “We think policy easing will support global risk assets. Unlike the 2010s—but similar to the 1990s—policy rates should stay above the rate of inflation,” said Jacob Manoukian, U.S. Head of Investment Strategy at J.P. Morgan Private Bank.
Additionally, household spending, particularly in the U.S., continues to be strong. “This is a boon for companies, which have rarely been better at turning sales into profits. These companies are now investing for the future,” continues Manoukian. “A particular area of focus being on AI (Artificial Intelligence) where the impact on growth could be substantial–perhaps even transformative–with evidence indicating that the AI productivity boost may appear in U.S. economic data by the end of the 2020s.”
Sources of uncertainty signal a fragile world
Thomas Kennedy, Chief Investment Strategist at J.P. Morgan Private Bank, states, “while our market and economic outlook is constructive, we acknowledge two main sources of uncertainty – geopolitical risk and the U.S. election.”
When it comes to the U.S. election, we expect that pockets of the markets could be more sensitive to election results, including small and mid-cap equities, the U.S. dollar and clean energy companies. However, during each election cycle, we urge clients not to let results derail their long-term, goals-based plans, and instead focus on constructing a well-diversified portfolio.
Looking at geopolitical risk, investors with concentrated exposure likely have more to fear from geopolitical risks than those with globally diversified portfolios. Investors can look to equities to harness global growth, real assets to hedge against inflation, and bonds to offer income and mitigate risk if economic growth falters.
Writing a new chapter for corporate Europe
With rising dividends and share buybacks, it is evident that European companies are embracing a structural shift to become more shareholder friendly. This trend is accompanied by improving economic fundamentals in the eurozone, with consumer health looking positive, a strong outlook for corporate profits, and rate cuts underway.
“We expect investors to increasingly recognize that leading European companies, the region’s ‘national champions,’ sell to a truly global consumer base,” said Erik Wytenus, Europe, Middle East and Africa Head of Investment Strategy at J.P. Morgan Private Bank. “They can benefit from a global economy that has weathered a higher interest rate environment better than many had expected. We think the European economy will remain resilient over the coming year.”
Japanese stocks: This time is different
After decades of economic malaise, Japan welcomes inflation with nominal economic growth moving higher. At the same time, corporate governance reforms are now strongly encouraging a structural change focusing on efficiency and profitability, resulting in companies returning more value to shareholders than ever before.
“In our view, share prices do not yet fully reflect the market’s full potential. Although Japanese stocks currently trade in the midrange of their valuations over the past 15 years, global positioning remains underweight Japanese equities,” said Alex Wolf, Asia Head of Investment Strategy at J.P. Morgan Private Bank. “We think multiples could move higher as global investors come to appreciate the structural shifts underway. Sectors that stand out to us include financials, consumer discretionary (excluding autos), technology, industrials and real estate.”
Strong demand, scarce supply: Unearthing profits from critical raw materials
Latin America has long capitalized on its natural resources and mining accounts for most of the major countries’ trade balances, with this secular opportunity increasing the potential for further export growth. Surging demand will exacerbate an already tight mineral supply expected for the coming decade.
“For global investors, Latin America’s equity markets currently offer solid earnings and attractive valuations, both relative to global peers and their own histories,” said Nur Cristiani, Latin America Head of Investment Strategy at J.P. Morgan Private Bank. “Stocks in Latin America are trading at a 9x 12-month forward price-to-earnings ratio versus a 10-year average of 12x, ranking as the world’s least expensive equity region.”
Learn more about J.P. Morgan Private Bank’s 2024 Mid-Year Outlook and download the full report here.
