Equities Now Offer the Most Attractive Opportunities
J.P. Morgan Asset Management’s «Guide to the Markets» provides client advisors and professional investors with targeted support for making the best investment decisions.
Holding up Well
The global economy continues to show considerable resilience. Labor markets around the world remain strong (Guide to the Markets – Europe pages 18, 29, 35) while headline inflation has fallen thanks to food and energy prices, and disinflation emanating from China (page 40).
Despite domestic price pressures appearing sticky, central banks are unlikely to disappoint the markets given prior rate cut promises (page 8). This bodes well for consumers, particularly in Europe where pandemic savings remain elevated (page 28). This should support spending on services, while global trade and manufacturing also appear to be turning a corner (pages 14, 25, 34).
We may see a degree of convergence between US and European growth rates.
Markets Priced for a Benign Outcome
Investors have already responded to benign macro conditions and the prospect of lower interest rates. It’s now difficult to find areas of the market where valuations don’t already reflect this «perfect» economic scenario. In fixed income, we like government bonds (page 65).
If recession risks intensify and interest rates are cut more quickly than the market expects, the upside on core bonds could be meaningful (page 67). Fiscal policy is the key variable that could challenge this view and push yields higher if the promise of tax cuts and more spending is a prominent feature of the US election debate (page 24).
Take Advantage of Valuation Dispersion
Within equities, high levels of valuation dispersion are the source of the most compelling opportunities. We focus on identifying strong companies in unloved regions (page 45), while also expecting the potential benefits from AI-related gains to trickle down across a broader range of sectors (page 62).
We still need to be mindful that there are several questions that remain unresolved as we move further through 2024. Elections will be front of mind for many investors (page 23). Whether inflation is sustainably back on a path to 2 percent remains to be seen (pages 19, 31, 36).
Mindful of Potential Volatility
For the stock market, earnings growth estimates for 2024 are reliant on tech giants continuing to deliver against an increasingly high bar (page 46). Against this backdrop, balance in portfolios is essential: between stocks and bonds and regional allocation.
We also think investors should consider the benefits alternative assets can bring, such as resilience to broad market volatility or inflation shocks (pages 76, 77).
