Mid-year outlook: Sailing through uncharted waters

Macroeconomic Outlook - US economic growth is expected to moderate, with government spending and service consumption contributing less to GDP in the future[6] - Eurozone growth has improved due to falling inflation, but upcoming French elections introduce political uncertainty that could impact economic stability[7] - The Federal Reserve is anticipated to cut rates, with a potential 160 basis points of cuts over the next three years, starting with two 25 basis point cuts later this year[31] Fixed Income Outlook - Developed market bonds, particularly US Treasuries, are expected to provide attractive income and value, with a focus on longer-dated Treasuries[10][14] - Demand for US Treasuries has increased significantly, driven by weaker economic fundamentals and reduced competition from corporate bonds[16] - Fiscal policy in the US is likely to peak, with interest costs crowding out necessary spending, which may lead to increased market volatility[19] Currency and Emerging Markets - The US dollar is expected to weaken as fiscal support diminishes, with real GDP growth slowing to 2% in the first half of 2024[46] - Emerging market currencies performed well in early 2024 but faced corrections due to changing valuations and rising political risks[45] - Political developments in the US elections could significantly impact currency performance, particularly if a Republican sweep occurs[46] Investment Strategy - A cautious approach is recommended due to potential election-induced market volatility, with a preference for smaller positions to withstand price movements[21] - High-yield bonds are expected to remain attractive, supported by strong demand and limited new supply, particularly in refinancing[59] - Structured credit sectors like CRT and CLO are anticipated to outperform due to solid housing fundamentals and healthy household balance sheets[87]