Market Outlook and Commentary Q2 2024

Outlook & Commentary

Evan, our Director of Portfolio Management, sat down to share his thoughts on the past quarter, and an outlook on the upcoming months. 

AI Observations

The world could be undergoing a transformation on par with the Industrial Revolution – thanks to a potential surge in investment in artificial intelligence (AI), the low-carbon transition and a rewiring of global supply chains.

However, the speed, size and impact of that investment is highly uncertain. Additionally, it comes against an unusual economic backdrop post-pandemic: sticky inflation, higher interest rates, weaker trend growth and high public debt.

We think taking risk by leaning into the transformation and adapting as the outlook changes will be key.

Themes for the Third Quarter

Before the pandemic, low inflation allowed central banks to slash interest rates and make massive asset purchases to buoy the economy. That boosted the financial economy – and helped drive gains across bonds and stocks. In this new regime, the real economy matters more. Our first theme is "getting real."

Get Real

We see the biggest opportunities in the real economy as investment flows into infrastructure, energy systems and technology – and the people driving them. We think companies may need to revamp business models and invest to stay competitive. For investors, it means company fundamentals will matter even more. The gap between winners and losers could be wider than ever, in our view. That dispersion creates opportunities and is why our second theme is "leaning into risk."

Lean In to Risk

The answer to a highly uncertain outlook is not simply reducing risk. We look for investments that can do well across multiple scenarios and lean into the current most likely one.

For us, that’s a concentrated AI scenario where a handful of AI winners can keep driving stocks. We stand ready to adapt as and when another scenario – potentially suddenly – becomes more likely as the transformation unfolds. So our third theme is "spotting the next wave."

Spot the Wave

This is about being dynamic and ready to overhaul asset allocations when outcomes – and investment opportunities - can be vastly different. Investment implications: We stay overweight U.S. stocks and the AI theme on a six- to 12- month view. We like income in short-term bonds and credit. And we see private markets as a way to tap into the early  winners and the infrastructure needed for the investment boom ahead.