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Mid-year Investment Outlook 2024

The value of investments can fall as well as rise, and you may not get back the full amount you invest. Past performance should not be taken as a guide to future performance. Eligibility criteria, fees and charges apply. You should continue to hold cash for your short-term needs.

A look at the year so far

The first half of 2024 has been a positive sight for investors, even though they’ve had to face some choppy conditions. Coming into the year, the thought of a recession on the cards left investors a bit hot under the collar – but this is nothing but a distant memory now. And while interest rates have been raised at the fastest rate in decades, attention is now turning away from whether we’ll see another hike – and rather when they’ll start coming down. 

Global economy holds strong

While the UK went into a recession at the beginning of the year, it was only shallow and short-lived. For the rest of the world, economies have stayed in growth mode, and the battle against rising prices has been a positive one. Inflation is falling – and not at the cost of the global economy. Unemployment rates have stayed low, meaning people are spending money – and company reports (and their share prices) are reflecting this.

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Mortgages stabilise US economy

As we mentioned in our Investment Outlook at the beginning of the year, mortgages in the US have continued to play a key role in stabilising its economy. Households have had the choice of a 30-year mortgage, giving people the chance to lock in their mortgage rates before the recent hikes. This means the average Joe hasn’t seen their outgoings go up – and they’ve got to keep their usual lifestyle.

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Energy prices drop

 

Europe’s services sector has benefited from a drop in energy prices – now below where they were before Russia’s invasion of Ukraine. With expenses going down, profits go up.

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Price hikes settle

Factors that caused soaring prices in 2022 have been phased out of the ecosystem. Supply chain bottlenecks, labour shortages and price shocks are no longer a big concern for businesses.

Inflation has now been falling towards central banks’ target of 2% – although it’s lost some of its pace in the past few months. But this leaves central banks in a dominant position to cut interest rates once inflation reaches targets, or if the economy begins to suffer.

The European Central Bank was one of the first to cut rates in 2024 – by 0.25% in June. The Bank of England and US Federal Reserve are still to take any action but are expected to make their first cuts in the second half of the year. 

Our investment approach

Markets have performed well throughout the first half of 2024. It’s been an encouraging environment for the investment team at Coutts, the decision makers behind our funds, to take risks where appropriate. These risks are all a part of their investment strategy: Anchor and Cycle.

Anchor – the long-term vision, prioritising our big asset allocations to be well-positioned for this time horizon.

Cycle – a focus on what’s impacting markets in the more immediate future, taking into consideration where we are in the business cycle, current market mood and updated central bank policies.

Our funds have a preference for global stocks – this is part of the Cycle strategy. The global economy shows signs of continued growth, which should help company earnings also balloon.

Our bonds allocation has been a part of the Cycle strategy. Government bonds, seen as a safer option for investments, have not been performing as well with yields going up – as yields go up, prices come down. Instead, their ‘riskier’ counterparts, high-yield corporate bonds, have offered better returns. High-yield bonds are debt issued by large companies, and usually offer returns like a stock. 

Economic impact of political elections

Some key events to watch out for this year are the political elections being held in the largest economies in the world. This could be critical for international relations and their own economies.

While elections are important and can cause short-term volatility, they don’t impact the performance of stock markets over the long term. For the past 100 years, the average return of the US stock markets is only slightly better in a non-election year. The main things investors focus on are the key factors such as interest rates, inflation and company earnings. 

Information Message

Green investments on the up

In the US, there has been some political disagreements on the term environmental, social and governance (ESG) within investing – what it actually means, and does it have an impact? But regardless of this dispute, investments in green strategies are on the up.

The Inflation Reduction Act was introduced in 2022, which pledged to invest $400bn of federal funding into clean energy and tackle climate change. This has got support from the two leading parties competing in the upcoming US election, the Democrats and the Republicans. 

Information Message

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Strong performance from US tech sector

We‘ve mentioned throughout this report how important company earnings are on the performance of financial markets – it’s worth explaining what and why this is. After every quarter, typically companies announce how their businesses have performed for the last three months. This helps tell investors if they’ve made the right decision to choose to invest (or not) in them.

One of the top performing sectors so far this year is technology, driven by just a handful of tech giants which the industry has recognised as the ‘Magnificent 7’. Made up of Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla, this small group of stocks has been the key contributor to the US stock markets’ strong performance and earnings growth in the first half of the year.

What’s driven their success? Artificial intelligence (AI). 

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Tech dominance and the AI boom

The buzzword of the year has been AI. Tech giants are either getting investors excited about the future of their businesses because of the massive surge in adopting AI (which they offer services in) or they’ve optimised their businesses by implementing AI both quickly and efficiently.

However, the technology sector’s dominance might not last forever. The rest of the US market is expected to catch up which could see the size of the group of market leaders grow.

The communications and technology sectors are the top two best returners so far this year. Third on the list is utilities – energy and other similar service providers – which has been a surprise. These companies have also benefited from the AI boom off the back of the growing data centre industry.