Midyear Outlook 2024: Still Waiting for the Turn

Recently, the LPL Research team published the 2024 Midyear Outlook: Still Waiting for the Turn. A check-in on where the markets have been and where they seem to be headed, the report is a great guide to help steer personal portfolios. If you haven’t read it yet in its entirety, take a minute to tap into some of the key takeaways.

Economy

Economic growth has continued to surprise on the upside. This resilience can largely be attributed to strong consumer spending and varying degrees of interest rate insensitivity throughout parts of the economy. That said, a delayed landing is on the horizon, and we anticipate an economic slowdown beginning in the latter half of 2024. Investors should be prepared for slower consumer spending, a softer labor market, and contained inflation — all core ingredients needed to give the Federal Reserve (Fed) an onramp to cut rates before the end of the year.

Stocks

Stocks soared in the first half of 2024. Looking ahead, earnings growth will be key, and the stock market will likely rely heavily on corporate profits continuing to exceed expectations. Elevated valuations are a potential headwind, suggesting that most of the good news is priced in and that gains could be modest. While incremental gains are possible, volatility is likely to pick up. Investors should be prepared for potential setbacks, especially considering the election in November and geopolitical uncertainty — all the reasons to consider buying during market dips.

Bonds

The focus for fixed income investors should shift back to the traditional benefit of bonds: income generation. Current high starting yields offer attractive risk-adjusted returns, even without significant price appreciation. Additionally, bonds can help reduce overall portfolio volatility compared to stocks. With the Fed likely to begin cutting rates in the second half of 2024, investors should consider using bonds to replace some cash holdings to lock in these yields and fortify their overall portfolios.

U.S. Election

The rematch between Biden and Trump is shaping up to be extremely close. As the candidates have starkly different positions on many major issues, it is likely to be another divisive and contentious affair. Given historical patterns and the fact that markets usually dislike extreme uncertainty, investors should be prepared for higher levels of market volatility in the back half of the year.

Geopolitics

The rise of competing power blocs and escalating regional conflicts raise significant concerns for global stability. While diplomatic efforts have prevented a wider conflict so far, these tensions have created an environment of heightened uncertainty for investors. Markets have been less reactive to current conflicts, but this could change rapidly if hostilities escalate. The increasingly uncertain geopolitical environment is one reason we believe investors should keep their market exposures tightly managed in the second half of the year.

Commodities

Industrial commodities have strengthened due to resurgent manufacturing in China and the U.S., particularly in the electrical vehicle (EV) sector. Strong demand for EV production and AI infrastructure buildout are driving prices higher. This trend is expected to continue in the second half of 2024, but likely at a more moderate pace if the economy begins to slow. Meanwhile, geopolitical and political uncertainty could maintain demand for precious metals.

Currencies

The Fed's to-date hawkish stance has kept the dollar supported and creates headwinds for other currencies, especially in emerging markets. While rate cuts could weaken the dollar down the road, near-term strength is likely to persist until inflation shows more definitive signs of moving towards target.

Alternative Investments

As expected, 2024 has seen a rise in market dispersion, creating opportunities for skilled active managers in the alternatives space. Moving forward, we anticipate this trend to continue and for volatility to begin to rise more meaningfully. This environment will favor certain strategies that can capitalize on both broad economic trends and micro fundamentals. Over the intermediate and long-term, we believe incorporating alternative strategies like global macro, multi-strategies, and managed futures could benefit investors vs. maintaining solely a traditional stock/bond allocation.

These are just some of the high-level takeaways from the 2024 Midyear Outlook: Still Waiting for the Turn. For in-depth commentary and analysis, read the full report today. Or for insights and action steps investors and their financial professional may want to discuss, read the recap.