The global stock market has been on a rollercoaster ride in 2024, reflecting the economic uncertainties that have permeated the financial world. However, a recent Reuters poll of equity strategists suggests that despite the turbulence, global stocks are set for modest gains in the coming months. This prediction hinges largely on the expectation that major central banks are poised to implement a series of interest rate cuts, a move that could stabilize and boost markets worldwide.
A Volatile Year for Global Markets
The year 2024 has been marked by significant market fluctuations. Early August saw a sharp downturn in equity markets, triggered by the unwinding of large leveraged positions funded in Japanese yen and weaker-than-expected U.S. jobs data. The global MSCI index, a key barometer of global equity performance, plummeted approximately 9% from its all-time high set in mid-July. This steep decline sent shockwaves through the financial markets, raising concerns about a potential global recession.
However, in a remarkable turnaround, the MSCI index has since recovered nearly all its losses, now standing about 14% up for the year. This swift recovery indicates that markets have largely moved past recession fears, even as they begin to price in more interest rate cuts than were anticipated just a few months ago.
Central Banks: The Power of Rate Cuts
The primary factor driving this cautious optimism is the anticipated series of interest rate cuts by major central banks. The Federal Reserve, European Central Bank, and other key institutions are expected to begin easing monetary policy, a move that could provide much-needed relief to the global economy.
Economists are predicting a more gradual easing cycle, reflecting the belief that the global economy will continue to grow at a steady pace. Federal Reserve officials have maintained that while rate cuts are likely, they do not foresee the need for aggressive action. Kamakshya Trivedi, head of global FX, rates, and emerging market strategy at Goldman Sachs, noted that “growth fears moved too far,” and that the current market conditions do not warrant extreme concern. Instead, Trivedi advocates for maintaining faith in continued economic expansion and decelerating inflation.
Modest Gains Expected Across Major Markets
The latest Reuters poll, conducted between August 8-20, 2024, surveyed over 150 equity strategists, stock brokers, and portfolio managers. The results indicate that most major equity indices are expected to gain further by the end of the year. However, with 13 of the 15 bourses surveyed already trading at or near their record highs, the anticipated gains are expected to be modest, with most indices forecasted to achieve single-digit increases.
In the United States, the S&P 500, one of the most closely watched indices, is expected to trade near its current record levels at year-end. Meanwhile, the euro zone’s blue-chip STOXX50E index is predicted to gain 3.4% from its current levels by the end of 2024. Even in India, where the stock market has been performing exceptionally well, the benchmark BSE Sensex is forecasted to rise just over 3% to a lifetime high of 83,000 by year-end.
Despite these tempered expectations, the majority of analysts do not foresee an outright global correction—a drop of 10% or more—in the coming three months. This cautious optimism is underpinned by the belief that corporate earnings will outperform expectations for the rest of the year. According to the Reuters poll, 60% of analysts expect corporate earnings to exceed expectations, providing a solid foundation for further market gains.
The Role of Corporate Earnings
Corporate earnings are a critical factor in determining the trajectory of global stock markets. In 2024, many companies have managed to navigate the challenging economic environment with relative success. This resilience is expected to continue, with the majority of analysts predicting that earnings will outperform expectations in their local markets.
Michael Gibbs, Lead Portfolio Manager at Raymond James, described the current market environment as a “Goldilocks scenario,” where the Federal Reserve is poised to cut rates, inflation is on a downward path, the job market remains contained, and the macroeconomic picture is resilient overall. Gibbs believes that this combination of factors should drive earnings growth and support a positive bias for equities.
Global Markets: A Mixed Bag
While the outlook for global stocks is generally positive, the performance of individual markets varies widely. In the United States, the S&P 500 has seen a relentless recovery from its early August lows, driven by strong corporate earnings and a resilient economy. However, this recovery took a brief pause on Tuesday, with the index falling 0.2%, its first down day since August 7. Futures for the S&P 500, Nasdaq, and Dow Jones are currently hovering around unchanged, reflecting a wait-and-see approach from investors.
In Europe, shares are showing modest gains, with the STOXX index up slightly. The euro has been trading lower against the U.S. dollar, reflecting concerns about the euro zone’s economic outlook. Meanwhile, in Asia, markets have been more mixed. Japan’s Nikkei 225 index fell 0.3% on Wednesday, while Australia’s S&P/ASX 200 rose 0.2%. In Hong Kong, the Hang Seng index slipped 0.7%, reflecting ongoing concerns about the region’s economic outlook.
The Impact of U.S. Monetary Policy
U.S. monetary policy remains a key driver of global markets. The Federal Reserve’s actions are closely watched by investors worldwide, as they have significant implications for global liquidity and economic growth. The Fed’s July meeting minutes, released later today, will provide further clues about the central bank’s rate-cutting intentions.
The Fed has already indicated that it is considering a series of rate cuts in the coming months, with markets pricing in nearly 100 basis points of cuts by the end of 2024. However, the timing and magnitude of these cuts remain uncertain. Fed Chair Jerome Powell is expected to provide further guidance during his speech at the Kansas City Fed’s annual central bank symposium in Jackson Hole, Wyoming, later this week.
Conclusion: Navigating Uncertainty
The global stock market’s performance in 2024 has been marked by volatility and uncertainty. However, despite the challenges, there is a growing consensus that markets will continue to gain modestly in the coming months. This outlook is supported by the anticipated series of interest rate cuts from major central banks, as well as the resilience of corporate earnings.
While the path forward may be uncertain, investors can take solace in the fact that the global economy appears to be on a stable footing, with inflation decelerating and growth expected to continue. As always, the key to navigating this environment will be a careful balance of risk and reward, with a focus on long-term fundamentals.
As we move into the final months of 2024, the global stock market will continue to be shaped by a complex interplay of economic data, corporate earnings, and central bank actions. For investors, the challenge will be to stay informed, remain patient, and be prepared to adapt to the evolving landscape
