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Q2 2024

Capital Markets Outlook

May 2024

 

 

 

 

Highlights

Macro
  • The increased potential of an artificial intelligence revolution fueled equity markets during the first quarter

  • Immaculate disinflation should give way to a soft landing, though not equally soft everywhere
Rates
  • Expect the fed and ECB to follow similar paths, but slower growth in the Eurozone may push the ECB to cut first

  • Investors with longer time horizons should benefit as rates fall
Credit
  • Strong backdrop for investment-grade credit
Emerging-Market Debt (EMD)
  • We see opportunities in EM corporates.
Equity
  • Stock markets gained as magnificent seven dominated returns

  • Stocks can perform well in moderate inflation environments
 
  1. Rates
  2. Credit
  3. EMD
  4. Equity

Macro

The Global Growth Picture Points to a Soft Landing and a Bumpy Disinflation Path

We Expect a Soft Landing for the Global Economy
GDP forecast (percent)

As of March 31, 2024
Source: Bloomberg, International Monetary Fund and AB

The Disinflation Path Should Be Bumpy
AB inflation forecasts (percent)

As of March 31, 2024
Source: Bloomberg, International Monetary Fund and AB

What Are We Watching?
 

Key Upside Risks

  • Expanding labor markets as migration flows increase could boost potential growth
  • A smoother-than-expected political cycle could remove a potential economic headwind

Key Downside Risks

  • If inflation convergence stalls, expected rate cuts might not materialize
  • Political and geopolitical volatility could disrupt both market sentiment and economic performance

Current analysis and forecasts do not guarantee future results.
DM: developed market
*International Monetary Fund (IMF) global forecast as of January 30, 2024

Rates

Navigating Global Rates

High Mortgage Rates Have Impacted Growth in UK and Canada
Mortgage rates (percent)

As of March 31, 2024
Source: Bank of Japan, Bloomberg and AB

Breakevens Remain Below Current and Forecast Inflation Rates
Percent

As of March 31, 2024
Source: Bank of Japan, Bloomberg and AB

10-year JGB Has Room to Move Higher Following First Hike Since 2007
10-year JGB yield (percent)

As of March 31, 2024
Source: Bank of Japan, Bloomberg and AB

Current analysis and forecasts do not guarantee future results.
JGB: Japanese government bond; IRP: interest rates policy; bps: basis points
Sweden 2024 inflation forecast is based on consensus estimate.
*Fair value estimated through multiple regression analysis of Japan policy rates, JPY overnight index swap 1s/2s spread and the 10-year US Treasury yield.

Credit

Strong Backdrop for Investment-Grade Credit

US IG Fund Flows Are on Track for a Very Strong Year

As of March 31, 2024
Source: Bloomberg, J.P. Morgan and AB

US Spreads Are Tight, but Yields Are Compelling; the Treasury Component Cushions Returns in Times of Stress

As of March 31, 2024
Source: Bloomberg, J.P. Morgan and AB

Past performance and current analysis do not guarantee future results.
IG: investment-grade; AUM: assets under management; YTW: yield to worst; OAS: option-adjusted spread; LT: long-term
Numbers may not sum due to rounding. LT average since 1989
*Tsy Ret.: duration-neutral Treasury return

EMD

We See Opportunities in Emerging Markets, Especially Within Corporates

EM Corporates Exhibit Lower Leverage than DM Counterparts (Ratio)

As of June 30, 2023
Source: Bank of America, Bloomberg, J.P. Morgan and AB

Global Duration Trends May Be a Tailwind for Local Rates as the Year Progresses

As of December 31, 2023
Source: Bank of America, Bloomberg, J.P. Morgan and AB

EM Corporate Sharpe Ratios Are Attractive (2015–2024)

As of March 31, 2024
Source: Bank of America, Bloomberg, J.P. Morgan and AB

Current analysis does not guarantee future results.
EM: emerging-market; DM: developed-market; HY: high-yield; IG: investment-grade; UST: US Treasury
US high yield is represented by Bloomberg US High Yield; EM sovereigns by J.P. Morgan EMBI Global Diversified; EM corporates by J.P. Morgan CEMBI Broad Diversified; EM HY corporates by J.P. Morgan CEMBI Broad Diversified-HY Index; EM IG Corporates by J.P. Morgan CEMBI Broad Diversified-IG Index; Euro IG by Bloomberg Pan European Aggregate Corporate Index; US aggregate by Bloomberg US Aggregate Index; US investment-grade corporates by Bloomberg US Corporate Investment Grade; Global aggregate by Bloomberg Global Aggregate and European high yield by Bloomberg Pan Euro High Yield. 

Equity

The Market Is Becoming More Discriminating with the Mega-caps

Magnificent Seven
Share price returns: 1Q 2024*

As of March 31, 2024
Source: Bloomberg, S&P, company reports and AB

Magnificent Seven: Reported Annual Adjusted Earnings Growth
Most recent fiscal year (percent)†

As of March 31, 2024
Source: Bloomberg, S&P, company reports and AB

Past performance and current analysis do not guarantee future results.
*Indexed to 100 on January 1, 2024
†Based on reported adjusted earnings for the most recent fiscal year. Fiscal year for Amazon, Meta Platforms, Alphabet Inc. and Tesla ended December 31, 2023. Microsoft’s most recent fiscal year ended June 30, 2023. Apple’s fiscal year ended September 30, 2023. NVIDIA’s fiscal year ended January 31, 2024.

© AllianceBernstein L.P.