Q2 2024 Market Outlook

Q2 2024 Market Outlook

Reviewing our outlook one quarter ago and thinking about what has changed is always a worthwhile exercise. The first quarter of 2024 proved a continuation of the final months of 2023, with broad-based strength across the globe and broadening of strength across company size and sectors. It remains a cyclically based market in the US, especially as strong economic growth has offset the expectations being repriced for fewer rate cuts (from about six late last year to two to three today). Economic weakness, and related slowing in inflation, have been more evident in European markets, the UK and Australia. Equity market investors have perhaps even reverted to expecting less than the Fed dot plot in rate cuts and so the incoming data on inflation will be important from here. Our portfolio positioning is still reflecting our expectation for a bottoming of the recession risks around the world. So far, this has meant, year to date, we captured the positive move in markets even with our risk protection process keeping us at 'less than market’ risk settings.

1Q24 earnings results begin in the coming weeks and we expect many good results from our companies, though the question to be answered is whether share prices, most up strongly, have priced this. While, if one thinks about just the very short term, the answer is not clear to us, over the longer term, we believe the upside for the portfolio is clear.

We continue to view 10-year Treasuries as range-bound around 4% in the US and with downside prospects, alongside policy (cash) rates, in most major developed economies as inflation slows. Rate cuts later this year look virtually assured, especially in Europe, and so we still anticipate this may be supportive of equities’ returns for 2024. Elsewhere Japan has finally moved interest rates above zero and its local market has benefited from Yen weakness and better corporate governance/ shareholder friendliness. China remains intent on a 5% GDP growth goal and this seems achievable through better industrial production and exports, while its housing market is very weak and so is the consumer. The gradual shift over the past decade to more value-added production capabilities has been successful inside China, and we can see a wave of very cost-competitive industries with excess capacity – renewables, batteries, electric and other cars, automation, robotics – has emerged. There is potential for this to be disruptive in a number of global industries and add a deflationary pulse.

With disruptive innovation as the single most powerful force in capitalism, we see the major technological advancements in Artificial Intelligence and Generative AI as critically important for investors. While it remains very early in the shift, like the internet, the PC and mobile phone adoption eras, AI will, we expect, change organisations’ work and workflow, as well as our personal lives, dramatically over the next decade. Microsoft finds itself again at the forefront of these changes, as it did when we adopted PCs. For now, the enabling and expansion of Gen AI requires deep pockets and large data sets and we believe the portfolio is well exposed to this future opportunity. Strong prospects for corporate earnings and cash flows, as we seem likely to be entering a period of major new innovation and improved productivity, mean an exciting backdrop for long-term investors.

Strong earnings mitigate rate volatility risk over a longer time horizon and so the portfolio is tilted towards those companies we believe can keep delivering better-than-expected results through time and are yielding high cash flows from their operations even today. Innovation alongside execution excellence is at the heart of many of the companies we own as we believe these position them to succeed and outgrow their respective industries. The quality threshold for inclusion in the Global Strategy remains high.


Important Information: This material has been delivered to you by Magellan Asset Management Limited ABN 31 120 593 946 AFS Licence No. 304 301 (‘Magellan’) and has been prepared for general information purposes only and must not be construed as investment advice or as an investment recommendation.  This material does not take into account your investment objectives, financial situation or particular needs. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer documentation, offer or invitation to purchase, sell or subscribe for interests in any type of investment product or service. You should obtain and consider the relevant Product Disclosure Statement (‘PDS’) and Target Market Determination (‘TMD’) and consider obtaining professional investment advice tailored to your specific circumstances before making a decision about whether to acquire, or continue to hold, the relevant financial product. A copy of the relevant PDS and TMD relating to a Magellan financial product may be obtained by calling +61 2 9235 4888 or by visiting www.magellangroup.com.au.

Past performance is not necessarily indicative of future results and no person guarantees the future performance of any financial product or service, the amount or timing of any return from it, that asset allocations will be met, that it will be able to implement its investment strategy or that its investment objectives will be achieved. This material may contain ‘forward-looking statements’. Actual events or results or the actual performance of a Magellan financial product or service may differ materially from those reflected or contemplated in such forward-looking statements.

This material may include data, research and other information from third party sources. Magellan makes no guarantee that such information is accurate, complete or timely and does not provide any warranties regarding results obtained from its use. This information is subject to change at any time and no person has any responsibility to update any of the information provided in this material.  Statements contained in this material that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of Magellan. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. No representation or warranty is made with respect to the accuracy or completeness of any of the information contained in this material. Magellan will not be responsible or liable for any losses arising from your use or reliance upon any part of the information contained in this material.

Any third party trademarks contained herein are the property of their respective owners and Magellan claims no ownership in, nor any affiliation with, such trademarks.   Any third party trademarks that appear in this material are used for information purposes and only to identify the company names or brands of their respective owners. No affiliation, sponsorship or endorsement should be inferred from the use of these trademarks. This material and the information contained within it may not be reproduced, or disclosed, in whole or in part, without the prior written consent of Magellan.

Insights direct to your inbox

Make sense of the global investment landscape with timely updates, articles and videos from our investment experts.

Enter your first name
Enter your last name
Provide a valid email address
Provide a valid postcode
Select type of investor