Canada’s economy is clearly losing steam, and many economists are expecting a more significant downturn in the second half of this year.
United States: The U.S. equity rally could continue, particularly were inflation to fall quickly and the U.S. Federal Reserve were to cut interest rates in an environment where economic growth is sustained.
European stocks are relatively attractive based on valuations, earnings expectations are reasonable and macroeconomic signals appear to have stabilized.
Asian equities rose in the latest quarter given a solid global economic backdrop and as inflation continued to decline from uncomfortably high levels.
Last year was a historic period for emerging-market fixed income: interest rates set by central banks were for the first time on a par with those in developed markets.
Executive summary
A variety of factors have motivated us to upgrade the likelihood of a soft landing for the U.S. economy to 60% from 40% last quarter. We now look for modest growth in the first half of 2024 instead of recession.
Economy
We upgraded the likelihood of a soft landing for the U.S. economy to 60% from 40% last quarter, and now look for modest growth in the first half of 2024 instead of recession.
Fixed Income
Our models indicate that the appropriate level for bond yields is lower if inflation continues to fall as we expect. A variety of bullish technical measures also suggest a solid outlook for bonds.
Equity markets
Global equities have enjoyed a powerful rally in the past quarter, with many major markets reaching record highs. Most of the recent gains, however, have been delivered by a narrow set of mega-cap technology stocks.
Equity markets
Equity markets climbed to new highs in the past quarter, although the biggest gains have been highly concentrated in a small group of mega-cap technology stocks that have benefited from trends in artificial intelligence.
Fixed Income
Our view is that fixed income markets offer decent return potential in the mid single digits and with only modest valuation risk over the year ahead, especially in an environment where central banks are actively cutting rates.
Economy
The global economy has managed to withstand higher interest rates and continue to grow, reinforcing our view that a recession can be avoided over the year ahead.