Investment

Six key themes: Insight into macroeconomic trends and market shifts

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As 2024 progresses, there are several key themes that will likely influence the macroeconomic and capital markets environment. Last year, US economic growth rebounded and inflation waned, while Europe and several emerging markets countries struggled to reignite healthy growth. The US Federal Reserve's hawkishness began to fade toward the end of the year, with the central bank contemplating a lower policy path ahead. However, the European Central Bank, the Bank of England and several others appear less likely to ease as soon.

Equity market performance surprised many investors in 2023, ending the year considerably higher than anticipated, although not without periods of considerable drama. One such instance occurred in March when a regional banking crisis prompted the Federal Reserve (Fed) to establish a bank funding program that allowed it to address banks' liquidity issues. It was a precise, and ultimately effective, response that allowed the central bank to contain the issue while also continuing to keep rates elevated. This allowed the bank to address the crisis while continuing its battle against inflation, one which appears to be moving in the Fed's favour.

Within capital markets, global equities, as measured by the MSCI AC Word Index, rose more than 20% while core fixed income, as measured by the Bloomberg Barclays Global Aggregate Index, broke a two-year losing streak, ending in positive territory. A wave of investor enthusiasm, partially driven by the promise of artificial intelligence (AI), swept over equity markets through to mid-year, driven by the Magnificent Seven, [Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla], a collection of mammoth US technology companies whose earnings power and balance sheet stability paint a picture of invincibility. However, history tells us that such subsets of stocks seldom travel in lockstep over long periods of time, highlighting the importance of analysing each of these companies on their individual merits.

This will be particularly important as we move into a more changing investment environment, one with the potential for greater geopolitical instability, elevated sovereign debt levels, higher borrowing costs and shifting global supply chains.