The second half of 2024 could be very different for investors than the first, according to Anthony Rayner, macro thematic multi-asset manager at Premier Miton.
In a commentary note, Rayner questioned whether the main factors driving equities higher in the first half will still be present in the second.
“If we start off by looking at what happened in the first half, US equity markets were driven higher by a small group of tech mega-cap stocks, and this fed the myth that the only game in town was US tech stocks, for example, the Nasdaq,” he said.
“The S&P 500 index did indeed materially outperform the equally-weighted version of the S&P 500, while the Nasdaq index outperformed both. However, the Nikkei 225 index kept up with the Nasdaq, and in fact marginally outperformed it in local currency terms.
“So, holding US tech stocks was not the only way to perform well, despite the common belief. In short, it has been possible to be diversified geographically and perform well.”
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He warned however, that ‘as night follows day’ there will be a tech correction at some point, whether a brief ‘breather’, or something more serious.
“As in the first half, having a broad exposure to tech stocks that are doing well but diversifying beyond that, so as to avoid concentration risk, seems a sensible way forward.”
Rayner noted the rising political risk and the possibility of increased currency volatility. He said from a portfolio construction perspective, experience has shown investors should not allow too much currency risk.
Addressing the interest rate outlook and bond yields, Rayner said it might be that the focus moves away from inflation data points to polling data points, especially when thinking about what drives the US Treasury yield.
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“In part as the Fed will be sensitive to not appearing too political ahead of the election, and so will be more likely to not act the closer it gets to election day, and in part because this election will likely be as noisy as any other, so markets will be drawn to it,” he said.
“That said, we generally consider political risk as a short-term noise phenomenon, as fundamental change doesn’t usually follow elections, and, if it does, the impact on financial assets is often unclear, so we certainly don’t position portfolios for election outcomes.
“In summary, there are some structural forces in place, such as elevated political and geopolitical risk, as well as medium-term inflation risk. However, as ever, it is unclear to any precise degree how financial markets will evolve, including into the rest of this year, and we believe it is disingenuous to argue otherwise and therefore unwise to have high conviction in forecasts, particularly around elections.”
