Mid Year Recap and Outlook: 2024
As we’ve moved beyond the midpoint of 2024, it’s a great time to reflect on market trends and look ahead to key factors that will shape the second half of the year.
Market Performance in the First Half of 2024
The year started strong for U.S. stock markets. The S&P 500 saw impressive gains, rising over 13% by mid-June, following a robust performance in 2023 when it surged by over 24%. However, the bond market did not fare as well, experiencing slight declines due to sustained high interest rates from the Federal Reserve.
Tech and growth sectors, particularly those tied to artificial intelligence, have driven market momentum. The NASDAQ and the Magnificent Seven tech stocks have been significant contributors to the S&P 500’s performance, given its heavy weighting towards these sectors. In contrast, international equities, mid-cap stocks, and small-cap stocks have seen more modest returns, ranging from 4% to 6%, with the bond market lagging due to sensitivity to interest rates.
Key Drivers for the Second Half of 2024
Inflation and Central Bank Policy: Inflation has been a mixed bag this year, initially surprising to the upside but showing signs of cooling more recently. This disinflation trend is expected to continue, potentially bringing inflation closer to the Federal Reserve’s 2% target. Lower shelter costs and wage growth moderation could support this trend. The Fed’s latest projections suggest one rate cut in 2024, but with positive inflation data and softer labor market conditions, up to two cuts could be possible.
Corporate Earnings Growth: Earnings growth is a critical market driver. Following a lackluster performance in 2023 with just 1% growth, S&P 500 earnings are forecasted to rise nearly 11% in 2024. Initially, growth has been concentrated in the tech and AI sectors, but a broader range of sectors is expected to contribute in the latter half of the year, potentially broadening market leadership and supporting overall market stability.
US Presidential Election: The upcoming presidential election on November 5 is a highly anticipated event. Historically, the third year of an election cycle tends to be the best for markets, with the fourth year also performing well as uncertainties start to resolve. Despite expected volatility leading up to the election, market performance usually improves post-election, irrespective of the winning party. A divided Congress is anticipated, which could result in political gridlock—a scenario often preferred by markets for its predictability and stability.
Outlook for the Second Half of 2024
With a solid start to the year, we anticipate several key developments: continued disinflation, potential Fed rate cuts, robust earnings growth, and election-related volatility. These factors collectively support a positive market outlook. Investors should consider using any volatility as opportunities to diversify and invest in quality assets at attractive prices, ensuring a balanced approach to capitalizing on market conditions.
As we move into the second half of 2024, maintaining a focus on fundamental drivers like inflation, Federal Reserve policies, and earnings growth will be crucial for navigating the market landscape effectively.
Sources:
[Market Performance Analysis, Financial Times](https://www.ft.com/markets)
[Sector Performance Insights, Bloomberg](https://www.bloomberg.com/markets)
[Economic Projections, Wall Street Journal](https://www.wsj.com/markets)
