As 2024 began there was plenty of concern about the U.S. economy, not least the worrying potential of recession.
But since, there has been resilience and growth to the point where the Fed has softened its stance on rate cuts to just a single change this year. So what next as we approach the second half of the year and into 2025 where further rate cuts are expected?
Wells Fargo Investment Institute, the RIA subsidiary of Wells Fargo Bank, has published its midyear outlook in which it cites the pivot points that have driven the economy since the start of 2024, and those which it believes will do so for the next 18 months.
Artificial intelligence, anticipated Fed rate cuts, declining inflation, and the resumption of durable earnings growth, combined to drive the positive momentum at the start of the year, the report says. And looking ahead, the following five pivot points will be in play:
For investors, the midyear outlook says that portfolio construction that includes equities and fixed income should benefit from conditions going forward, while the firm says defensive hedge funds and private capital strategies can offer diversification benefits, generate counter-cyclical returns, or offer a quality bias, at least until recovery picks up when long/short equity and activist equity strategies may be appropriate.
“As we recalibrate our outlook for the back half of 2024, our guidance remains focused on high-quality investments in both equities and fixed income,” said Darrell Cronk, chief investment officer for Wells Fargo Wealth & Investment Management. “Quality investments have performed well — and we expect that will continue — as geopolitical risks, market volatility, and November elections will have much to say about the path for markets in the second half of the year.”
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