The outlook in a nutshell:

Global economies have been resilient in 2024. Inflation has moderated enough to support central-bank rate cuts in Canada and abroad. And while increased optimism has pushed stocks to record highs, further gains will depend on sustained investor confidence and lofty expectations being met over the remainder of the year.

The trends you need to know:

Economies have been resilient

The global economy has continued to grow at a moderate pace, despite higher interest rates. There’s now more confidence economies can manage a soft landing and recession can be avoided over the year ahead. While high interest rates, inflation, and ongoing geopolitical tensions are all risks that continue to be closely monitored, the resilience economies have shown in 2024 is an encouraging sign.

Inflation trending downward

If economies do manage a soft landing and avoid a recession, it will mean a more difficult path downward for inflation. Stubborn inflation numbers throughout the first few months of 2024 are an indication of that. And while improvement in April and May was a positive step forward, inflation is expected to remain high but trend downward over the remainder of the year and into 2025.

Rate cuts have begun

Central banks are beginning to ease policy rates, including the European Central Bank, the Bank of Canada, the Swiss National Bank and Sweden’s Riksbank. The Bank of England could follow suit as early as August following the U.K.’s national elections, and there is a chance the U.S. joins the rate-cutting parade this fall. With interest rates posing the biggest risk to the global economy, these decisions are important progress. It’s expected that this rate-cutting cycle will be more gradual in the absence of an imminent recession. 

U.S. dollar headwinds on the horizon

The expected U.S. Federal Reserve rate cut later this year could be one of a few dominoes impacting the value of the U.S. dollar in the long-term. In fact, a decline is projected over the course of several years. The currency’s overvaluation, persistent U.S. fiscal spending and the threats posed by a second Trump presidency are all factors supporting this outlook.  

Strong potential for bond returns

Bond yields have risen slightly in the past quarter as investors weighed the possibility that central banks may ease policy rates at a more gradual pace than previously expected. Fixed-income markets are expected to offer decent return potential in the mid-single digits and with only modest valuation risk over the year ahead, especially in a rate-cutting environment.

Mega-cap tech stocks driving market performance

A small group of mega-cap technology stocks have driven equity markets to record levels. These “Magnificent 7” are outperforming the rest of the S&P 500 by a large margin. Expectations are high for the large-cap U.S. equity market. The hurdle for outperformance is high for the Magnificent 7, while valuations are rich. Emerging markets, Canadian equities and U.S. small-cap stocks have underperformed in comparison but are also inexpensive on a relative basis. Global equity markets could offer attractive returns should economic and corporate-profit growth remain positive as a result.

Why should this matter to you?

Staying on top of investment trends can mean you’re ready to take advantage of opportunities as they arise, pivot as needed or stay the course. Our relationship with you is backed by the support of an industry leading team of experts that are dedicated to helping you navigate an unpredictable market and support the fulfilment of your financial goals.

If you have any questions or would like the full report, please contact us today.