So far 2024 has been a decent year for investors – most major global indices are in positive territory as inflationary pressures have eased and some central banks have pulled the trigger on rate cuts.

KEY DATES FOR THE REMAINDER OF 2024

Bank of England meetings: 1 August, 19 September, 7 November, 19 December

Federal Reserve meetings: 31 July, 18 September, 7 November, 18 December

UK Budget: September/October

US presidential election: 5 November

That’s not to say everything has gone as expected – the Federal Reserve and the Bank of England look set to ease monetary policy much more slowly than had been expected at the start of the year and political uncertainty has dogged European stocks.

As we enter the second half of the year it’s useful to get a sense of what expert observers of the financial markets expect to unfold, with the timing of a pivot on policy from the Fed and BoE likely to be in focus along with a potential earthquake in the form of the US presidential election.

WHAT WILL HAPPEN WITH INTEREST RATES?

We started the year with predictions of multiple rate cuts in 2024 from the Fed but now, thanks to sticky inflation, the safe money seems to be on one or at best two quarter-percentage-point cuts before the year is out.

Henk-Jan Rikkerink, global head of solutions & multi asset at Fidelity International says: ‘The range of outcomes when it comes to the magnitude of potential rate cuts by the Fed have narrowed significantly since the start of the year. We think that the bar for the cutting cycle to start remains high but recent progress on the inflation front has been encouraging.

‘A soft landing is the most likely outcome – and that’s a good thing for global growth and investors who are willing to take on additional equity risk.’ 

Ronald Temple, chief market strategist at asset manager Lazard, notes: ‘The Fed is likely to begin easing at the September Federal Open Market Committee (FOMC) meeting and could deliver two or three rate cuts of 25 bps by year-end.‘

There has been some divergence in monetary policy, with the European Central Bank already having cut and the Bank of England broadly expected to follow suit in August.

‘One point of divergence is monetary policy across developed markets. The Eurozone has cut rates ahead of the US, as we expected. While this lays some groundwork for Europe to build on the positive momentum it’s established over recent months, the risk of a devaluing euro means the European Central Bank’s easing path from here is closely tied to the Fed’s. We think it’s unlikely the ECB will cut much further without the Fed following suit,’ says Fidelity’s Rikkerink

Jim Leaviss, chief investment officer of the fixed income team at M&G Investments, offers a note of caution as he prepares to leave after a 27-year stint at the asset manager: ‘The road to lower rates is littered with obstacles, with potential impacts from a still resilient economy and jobs market as well as the US presidential election in November. Both geopolitics and the US election raise the potential risk of a resurgence of inflation.’

He goes on to observe that ‘there is an argument that inflation, and interest rates, have entered a new era and will remain higher. Factors such as the green transition, prolonged periods of heightened geopolitical tension and demographic trends could see the so-called “neutral rate” – the level at which interest rates neither stimulate nor hold back the economy – settle at a higher level.’

WHICH MARKETS AND ASSET CLASSES WILL PERFORM BEST?

Fidelity’s Rikkerink thinks US and Japanese stocks could continue to perform well: ‘Robust growth and healthy earnings in the former, coupled with structural tailwinds and corporate reforms in the latter, go some way to justifying rising valuations in these regions. But they don’t go all the way – in the US in particular, we’re looking beyond frothier parts of the market to uncover value. Mid-caps offer strong long-term growth potential at a reasonable price, and they should also prove resilient to higher rates.’

HSBC Asset Management’s global chief strategist Joseph Little thinks fixed income will stage a comeback in the remainder of 2024 – highlighting US treasuries and UK gilts as attractive thanks to their yields and an ‘encouraging macro backdrop’.

Little also thinks emerging markets could shine: ‘Emerging market equities have been impressively resilient to the higher-for-longer interest rate environment, the growth challenges facing China and the stronger dollar. We believe valuation discounts and broadening global growth present an opportunity for EMs, particularly in Asia, to lead in the second half of the year.’

This tallies with M&G emerging markets equities fund manager Michael Bourke who argues: ‘2024 potentially represents an exciting inflection point because the asset class is still attractively valued, the end of the dollar rate cycle appears to be looming large and we believe geopolitical concerns are already reflected in share prices, particularly in China.’

WHAT ABOUT THE US ELECTION?

The big uncertainty looming over the markets in the remainder of this year is the US presidential election. The Democrats have been thrown into disarray thanks to president Joe Biden’s widely-criticised showing against Republican nominee Donald Trump in a head-to-head debate in late June.

Biden’s exit from the race looks to have paved the way for vice president Kamala Harris to take up the mantle, but the upshot of the instability in the Democrat ranks and Trump’s resurgence would seem to be that a second term in the White House for the latter is more likely.

Lazard’s Temple says: ‘It’s too early to call the US election, but if Donald Trump wins a second term, the policies he has promised vis-à-vis tariffs, taxes, and deregulation could meaningfully affect the economy and markets. Trump’s geopolitical policies could also transform the landscape by raising questions about the United States’ commitment to defending allies in Europe and Asia.’

The team at M&G observe: ‘It is worth remembering that the Trump victory in 2016 resulted in market moves that were almost the total opposite of those predicted by pundits.

‘As the election approaches, we will inevitably learn more about the candidates’ policies. Although it will be hard to ignore the political clamour, it is worth bearing in mind that, from a long-term investment perspective, what really matters is meaningful policy changes that could have a significant impact on the economy. The rest is just “noise” that could create tactical opportunities for long-term active investors to exploit.’

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