Market Insights 2024

Market

The key points from the search results are:

The U.S. economic surprise index and 10-year Treasury yields have shown a strong positive correlation historically, indicating that economic surprises tend to drive changes in long-term interest rates. This relationship suggests that markets are pricing in expectations for the economy.

The S&P 500 forward earnings expectations have remained strong, with the technology and telecommunications sectors contributing significantly to the overall earnings growth. This has helped the S&P 500 overcome the drag of higher interest rates.

In Japan, solid corporate earnings and shareholder-friendly reforms have been supportive of the equity market. The Bank of Japan’s policy stance is also seen as supportive of local markets.

European credit spreads have underperformed their U.S. counterparts, with European investment grade and high yield spreads widening relative to the U.S.  This suggests that European credit is seen as riskier compared to the U.S.

The 10-year breakeven inflation rates, which reflect market expectations of future inflation, have diverged between the U.S. and the euro area, with the U.S. rate remaining higher. This indicates that the market expects higher inflation in the U.S. compared to the euro area.

The S&P 500 valuation, as measured by the forward price-earnings ratio, has remained elevated even as the market has priced in higher interest rates in the medium term. This suggests that the market is still pricing in robust earnings growth.

Hedge funds have shown higher Sharpe ratios compared to the S&P 500 and U.S. 10-year Treasuries, indicating that they have been able to generate better risk-adjusted returns in the current market environment. This suggests that active strategies may benefit from greater dispersion between and within asset classes.

The repricing in private real estate has lagged the adjustment in public real estate investment trusts (REITs). The authors believe that private real estate may be more resilient to potential economic slowdown, as it is less exposed to cyclical sectors.

Demographic shifts, such as the shrinking working-age population in several major economies, are expected to have significant implications for economic growth and investment opportunities in the coming decades.1

Reference: Q2 2024 GLOBAL INVESTMENT OUTLOOK

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