H2 2024 Economic Outlook : Everything is fine, Until it’s not
Despite the high interest rate environment set out from 2023 to today, economic indicators have displayed the resiliency of the U.S. and Euro economies to face elevated risk-free rates. The equity and bond markets are also voting in favor of a soft landing as inflation levels stabilize globally.
But is one year enough time to expose the cracks? Examining current macroeconomic data and comparing them to historical patterns could help us ascertain if this is a façade caused by a factor we often like to neglect: lag.
The analysis below explains why the economic system looks to be heading toward an accumulating storm. Consumers and corporations have started feeling the comedown from their cheap credit high. Hence, the next few quarters are critical to see how the business climate will reshape as high capital costs take full form.
This outlook also examines three secular megatrends playing out globally: the energy transition, the looming infrastructure boom, and AI; these present themselves as long-term investment opportunities.
Investors should favor fixed income over equities in portfolio allocation, especially if the Fed maintains its “higher for longer” stance on interest rates.
