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Q3 2024

Capital Markets Outlook

August 2024

 

 

 

 

Highlights

Macro
  • Artificial Intelligence beneficiaries propelled the index higher—again—on the back of a growing drumbeat of investment.

  • The global growth picture points to a soft landing and a bumpy disinflation path.
Rates
  • Global central banks have started the easing cycles but rates still expected to be “higher for longer” relative to history.
Credit
  • Investment-grade market has become lower priced and higher quality.
Emerging-Market Debt (EMD)
  • We see opportunities in EM corporates.
Equity
  • The market is becoming more discriminating with the Mega-caps.

  • Earnings growth expectations are improving
 
  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 June 30, 2024
Source: Bloomberg, International Monetary Fund and AB

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

As of June 30, 2024
Source: Bloomberg, International Monetary Fund and AB

What Are We Watching?
 

Key Upside Risks

  • More rapid disinflation could allow for more aggressive monetary policy easing, boosting growth
  • A smoother-than-expected political cycle could remove a potential and economic headwind

Key Downside Risks

  • Geopolitics are the foremost downside risk to activity, though the global economy and markets have thus far been resilient
  • Waning commitment to free trade could slow global growth

Current analysis and forecasts do not guarantee future results.
DM: developed market; Growth and inflation forecasts are calendar year averages except US GDP which is forecast as 4Q/4Q.
*International Monetary Fund (IMF) global forecast as of July 16, 2024

Rates

Global Central Banks Have Started the Easing Cycles but Rates Still Expected to be “Higher for Longer” Relative to History

Current Official Rates vs. AB Forecasts
Percent

Forecasts as of July 17, 2024
Source: Bloomberg and AB

Current analysis and forecasts do not guarantee future results

Credit

US Investment-Grade Technicals Have Been Very Supportive Year to Date

US IG Bond Issuance Has Increased, but Net Supply Has Been Manageable
USD billions

As of June 30, 2024.
Source: Bloomberg, J.P. Morgan and AB

US IG Has Experienced Strong Demand
Fund flows in USD billions

As of June 30, 2024.
Source: Bloomberg, J.P. Morgan and AB

Current analysis and forecasts do not guarantee future results.
IG: investment grade, YTD: Year to date
*Indicates full-year 2024 projection from J.P. Morgan; figure in etched bar is estimated amount remaining.

EMD

We See Opportunities in Emerging Market Corporates

EM IG Corporates Offer A Spread Pickup Over US IG

As of June 30, 2024.
Source: Bank of America, Bloomberg, J.P. Morgan, and AB

EM Corporate Sharpe Ratios Remain Attractive (2015–2024)

As of June 30, 2024.
Source: Bloomberg, J.P. Morgan and AB

Current analysis and forecasts do not guarantee future results.
IG: investment-grade; HY: high-yield; 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 investment-grade corporates by Bloomberg US Corporate Investment Grade; and European high yield by Bloomberg Pan Euro High Yield.

Equity

Global Equity Markets Advanced in First Half, Led by US Large-Cap Stocks

MSCI ACWI: January–June 2024

As of June 30, 2024.
Source: FactSet, FTSE Russell, MSCI, S&P and AB

Regional Returns: January–June 2024*
USD (Percent)

As of June 30, 2024.
Source: FactSet, FTSE Russell, MSCI, S&P and AB

Past performance and current analysis do not guarantee future results.
*US large-caps represented by S&P 500, emerging markets by MSCI Emerging Markets, UK by MSCI UK, Japan by MSCI Japan, Europe ex UK by MSCI Europe ex UK, Australia by MSCI Australia, US small-caps by Russell 2000 and China by MSCI China A.

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