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Q3 2024

Capital Markets Outlook

November 2024

 

 

 

 

Highlights

Macro
  • The global economy Is likely to slow but should avoid major disruptions.

  • In Europe, downside risks to inflation and growth have increased, pointing to a more front-loaded cutting cycle.
Rates
  • Global central banks have started the easing cycles but rates still expected to be “higher for longer” relative to history.
Credit
  • Strong backdrop for Investment-Grade Credit.
Emerging-Market Debt (EMD)
  • We see select opportunities in EM corporates.
Equity
  • Despite burst of volatility, equities ended the quarter higher.

  • Earnings growth expectations are improving outside of the US.
 
  1. Rates
  2. Credit
  3. EMD
  4. Equity

Macro

The Global Economy Is Likely to Slow but Should Avoid Major Disruptions

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

As of September 30, 2024
Source: Bloomberg, IMF and AB

Disinflation Should Continue
AB inflation forecasts (percent)

As of September 30, 2024
Source: Bloomberg, IMF and AB

What Are We Watching?
 

Key Upside Risks

  • Global labor markets remain strong; if the recent weakening is limited, growth may not slow much
  • Rapid rate cuts could boost financial markets, easing financial conditions

Key Downside Risks

  • Slower growth could spiral; monetary policy works with a lag, and rate cuts may be too slow or too small
  • Geopolitical risk continues to escalate

 

Current analysis and forecasts do not guarantee future results.
DM: developed market; EM: emerging 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 October 22, 2024

Rates

Global Central Banks Have Started Their Easing Cycles, but Rates Are Still “Higher for Longer” Relative to History

Current Official Rates vs. AB Forecasts
Percent

As of October 21, 2024
Source: Bloomberg and AB

Current analysis and forecasts do not guarantee future results.

Credit

Strong Backdrop for Investment-Grade Credit

Net Supply Remains Low, While Demand Is Increasing
USD billions

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

Yields Are Compelling, While Spreads Look Tight
Percent

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

Tight Spreads Partly Explained by a Higher-Quality, Shorter-Duration Market
Years

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

Past performance does not guarantee future results.
IG: investment-grade; OAS: option-adjusted spread; YTD: year to date. Middle display average since January 1, 2000

EMD

We See Opportunities in Emerging-Market Corporates

EM Corporates Exhibit Lower Leverage than DM Counterparts

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

EM IG Corporates Offer a Spread Pickup over US IG

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

EM Corporate Sharpe Ratios Remain Attractive (2015–2024)

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

Current analysis does not guarantee future results.
bps: basis points; DM: developing-market; EM: emerging-market; IG: investment-grade; HY: high-yield
EM HY Corp. is represented by J.P. Morgan CEMBI Broad Diversified-HY; US HY by Bloomberg US High Yield; EM Corp. by J.P. Morgan CEMBI Broad Diversified; Euro HY by Bloomberg Pan-European High Yield; EM IG Corp. by J.P. Morgan CEMBI Broad Diversified-IG; EM sov. by J.P. Morgan EMBI Global Diversified; US IG by Bloomberg US Corporate Investment Grade; and Euro IG by Bloomberg Pan-European Aggregate Corporate. 

Equity

Stocks Advanced Across Regions, but Sector Returns Shifted

Regional Returns*
July–September 2024, USD (Percent)

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

MSCI ACWI Sector Returns
July–September 2024, USD (Percent)

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

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

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