As we look ahead to the second half of 2024, it’s decision time—for the Federal Reserve, for the US electorate, and for investors.
Several key events look set to determine the investment landscape. The US will elect its next president, artificial intelligence (AI) should continue to advance rapidly, and we anticipate the Fed will start cutting interest rates.
The real focus for investors will be on how these events shape expectations for 2025: whether rate cuts will signal even lower policy rates, if AI investments will justify their hype, and how the next US administration’s policies might impact the economy and markets.
We believe that maintaining a long-term core allocation to equities, bonds, and alternatives should help investors navigate this uncertainty. However, we also see opportunities to take decisive action today to ensure portfolios are well-positioned for the months ahead.
We recommend preparing for lower rates by moving excess cash into quality fixed income markets, strategically investing in AI and other quality growth sectors, and considering tactical opportunities—including in US equity sectors and gold—to hedge potential US election risks.
In our asset allocation, we keep a positive view on fixed income. We expect bond yields to fall as the market shifts focus from the timing of the first Fed rate cut to considering how far rates might fall. We expect positive returns for diversified fixed income strategies. In equities, we retain a preference for technology, where earnings growth remains rapid thanks to high rates of AI investment. In currencies, we move the Swiss franc to most preferred, given that we expect only limited further policy easing from the Swiss National Bank. We also move gold to most preferred.
The second half of 2024 is poised to be a period of transition and volatility. Investors must remain vigilant and adaptable, leveraging both strategic and tactical approaches to navigate the evolving landscape. Economics, politics, central banks, and technology have created a dynamic environment—one that presents opportunities as well as risks.
