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Equities
Global equity markets seek fresh catalysts
Global equities posted mixed results in the second quarter of 2024. Emerging markets (EM) stocks led the way after lagging in the prior quarter, driven by China’s strong performance, followed closely by the S&P 500 Index. In contrast, non-U.S. developed markets produced negative returns, dragged down by Japan. Investors were cautious, looking for broader earnings growth and dovish cues from central banks. The European Central Bank (ECB) cut rates, while the Bank of England (BoE) signaled that easier monetary policy may be forthcoming later this summer. In the U.S., the Federal Reserve tempered expectations for lower rates, projecting just one likely cut in 2024. The Bank of Japan (BoJ), which raised rates in March, continued to pursue tighter monetary policy, announcing plans to scale back its monthly bond buying program.
Key takeaways
- Disinflationary trends during the quarter helped lower inflation closer to central bank targets, although only the ECB actually cut rates. China, meanwhile, made progress in its battle against deflation, with consumer prices rising throughout the period.
- We anticipate that the U.S. economy will continue to decelerate over the balance of the year. The slowdown is evident in the data on several fronts: Consumer spending has waned, manufacturing activity is contracting, the housing market remains weak and first-time unemployment claims have been edging up.
- Given our relatively cautious outlook, we favor (1) defensive areas like U.S. large cap stocks (especially dividend growers) and infrastructure; (2) exposure to specific EM opportunities in countries like India; and (3) attractively valued small and mid cap names in Japan.
- On balance, we still generally prefer U.S. over non-U.S. equities for their better defensive characteristics in case of a global economic slowdown. Recently, however, we have become more comfortable with reducing our U.S. overweight and shifting some assets into both developed and emerging non-U.S. markets.
- Within the U.S., we’re not yet prepared to upgrade our view on small cap stocks, although they are currently priced well below their longterm average and may offer select opportunities.
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Endnotes
Index Performance: FactSet; European Corporate Earnings: I/B/E/S; U.S. Corporate Earnings: Standard & Poor’s; Employment: RBC Global Asset Management; Russell Indexes: FactSet, Russell Investments.
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