- US markets to offer investors best return potential but US
election to present biggest risk
- While most believe the risk of a global recession is behind
us, two thirds (67%) think markets are too optimistic.
- Strategists believe portfolios diversified with alternatives
will likely outperform the traditional 60/40 mix.
- 80% of respondents believe AI will help uncover new
opportunities otherwise undetectable in business
practices.
With inflation easing, and fears of a global recession behind
us, the first half of 2024 (H1) experienced a positive start to the
year. But even so, nearly 7 in 10 (67%) strategists across Natixis
Investment Managers and its affiliates believe markets may be too
optimistic as they head into an uncertain second half of 2024
(H2).
The insights of 30 market strategists, portfolio managers,
research analysts and economists at Natixis Investment Managers and
11 of its affiliated investment managers, as well as Natixis
Corporate and Investment Banking from June 2024 show that all eyes
are on the United States in H2 as the presidential elections draw
closer.
Investors remain cautious despite a strong start to the
year
Although 73% of the strategists surveyed believe there is no
(10%) or a low (63%) risk of a global recession, uncertainty
remains. 74% of respondents see the US presidential election as a
medium (37%) or high (37%) risk to investors in H2, as 77% say
elections matter for markets. 60% think the US election will more
likely weigh on the market than support it, however, 3 in 10 (30%)
think the election is more noise than a signal for markets.
Inflation, which has returned as an issue in an election year for
the first time in decades, is among strategists’ top fears. And,
relatedly, some 47% worry about ‘politization’ of the Fed as it
makes rate cut decisions.
While inflation has continued to ease in H1, the strategists
still see it as a potential risk for investors, with just 7%
thinking the Federal Reserve will reach its target by year end and
4 in 10 (40%) worrying that surprise inflation could put a stop to
the market rally. 77% are concerned about rates remaining higher
for longer. 70% are expecting two rate cuts from the European
Central Bank (ECB) in the second half of the year, 67% expect two
cuts from the Bank of England (BOE), while only 37% expect the same
in the US.
Geopolitics
Political challenges continue to play on strategists’ minds,
with 80% of respondents worrying geopolitics will be a headwind in
H2 with the Ukraine war, the Gaza-Israel conflict and US-China
relations ongoing. In fact, 47% think geopolitical conflict could
potentially end the current market rally.
Government debt is also weighing on the minds of strategists.
70% say government deficits matter when they evaluate markets.
While 53% think that while debt levels are sustainable now, they
pose a long-term threat to the economy. Thirty-seven percent
believe debt levels are already unsustainable.
Searching for alpha against a backdrop of uncertainty
Two thirds (67%) of survey respondents project the US stock
market will offer investors the best return potential in H2, while
just 10% see top growth coming from the UK and only 3% say from
Europe. Two thirds (67%) think growth will outperform value, and
over 7 in 10 (73%) think large caps will outperform small caps.
While they believe returns will be less concentrated, 60% think
the information technology sector will be top performing in the US
in H2. However, just 10% think tech will provide the best returns
in Europe. There, the financials sector (20%) is expected to
perform well, followed by healthcare (17%).
In fixed income, higher rates have given a resurgence to bonds.
Strategists are split in where they think the best return potential
may be when looking at the US market, but all their top picks
indicate a preference for credit quality as the same number (23%)
call for core short government bonds, core long government bonds,
and investment grade corporates to deliver the best returns in H2.
In Europe, 27% see developed market investment grade corporates as
having the best return potential.
Fewer see the risk-reward trade off working in favour of bonds
with more exposure to credit risk, as only 13% think high yield
bonds or hard currency emerging market debt will offer the best
returns.
What investors need to know about cash, rates and
bonds
Higher rates have led many retail investors to turn to the
perceived “sure thing” presented by short-term cash instruments
that are offering the highest rates seen since the turn of the
century. But Natixis strategists are quick to remind individual
investors that there is no free lunch when it comes to
investing.
When asked for the top risks presented by cash that investors
may be missing, 53% of those surveyed said there are more
attractive returns to be found elsewhere – the proof is in
first-half returns of 15.3% for S&P 500®, 18.6% for the NASDAQ,
13.3% for the FTSE All-World Index, and 18.28% for the Nikkei.
There’s no stopping artificial intelligence – whether we like
it or not
Generative AI has been a catalyst for tech growth since the late
2022. Strategists predict that AI will have a significant impact on
markets over the next two to five years, with 73% suggesting it
will alter traditional market patterns and 77% believing it will
accelerate day trading. 97% still think AI needs to realise its
full potential, while understanding that it comes with risks – 93%
believe ever-expanding AI capabilities will increase the potential
for fraud and scams over the coming year.
Beyond markets, strategists are now thinking about its long-term
impact on their own business practices. 80% think AI will help
uncover new opportunities that are otherwise undetectable, and 70%
think it will help detect unknown risks.
Alternative investments to diversify portfolios
Given the complex picture for the second half of the year,
alternative investments are expected to play a diversification role
in portfolios. Six in ten (60%) strategists surveyed think a
portfolio made up of 60% equities, 20% fixed income and 20%
alternatives will outperform the traditional 60/40 portfolio in
H2.
Preferences for those strategies that offer higher levels of
diversification and risk protections are slightly higher than those
with the potential to boost returns. Precious metals and absolute
return strategies (17% in the US, 20% in Europe, for both) indicate
that strategists see the potential for these traditional risk
mitigators to deliver both in terms of downside protection and, in
the case of precious metals, a continued hedge on inflation.
A slightly smaller number of strategists see the potential for
private debt (13% in the US, 13% Europe) and private equity (17% in
the US, 10% in Europe) to deliver returns for investors in H2.
The future of sustainable investing
100% of Natixis strategists agree that politics will continue to
divide opinion on sustainable investments. However, in the next two
to five years, half of those surveyed think the fate of sustainable
investing will be determined by investors as consumer demand will
outweigh political pressure.
With sustainable investing at the centre of strong political
sentiment, 57% believe that regulations related to these
investments will get stronger, but they are not expected to be
consistent globally as only 10% think the EU and the US will align
on regulatory requirements, definitions, and reporting frameworks.
However, two thirds (67%) believe that ESG scores for data
providers will converge, meaning fewer players in the next five
years.
60% of strategists expect impact investing to continue to expand
and 50% believe asset managers will need to have a net-zero
commitment in order to win business in Europe and Asia, though only
2 in 10 (20%) think sustainable investing will be adopted as a
standard integrated into all portfolio strategies within the next
five years.
Mabrouk Chetouane, Head of Global Market Strategy, Natixis
IM, comments, “We have seen a strong start to the year with
robust stock market performances, easing inflation and a resurgence
of the bond market. Tech growth has continued to bolster US stock
markets, with the S&P and NASDAQ seeing returns of 15.3% and
18.6% respectively, with the strategists having no doubt that US
markets will continue to lead the way in the second half of the
year. However, investors should be cautiously optimistic as they
continue to face an array of headwinds in the second half of the
year, led by politics, geopolitical tensions, potentially higher
for longer rates, slower consumer spending, and elevated levels of
government debt.
“In order to mitigate risks, investors should look to diversify
portfolios across bonds, equities, and alternative investments to
prevent over exposure to a single asset class. The broader risks
have put more of a focus on quality when it comes to fixed income,
with strategists favouring government and investment grade
corporates over riskier high-yield and emerging market securities.
From here, all eyes will be on the US as we wait to find out the
outcome of the presidential race, which may have wide knock-on
effects to policy, markets, and geopolitics.”
The full survey report can be found here:
https://www.im.natixis.com/en-us/insights/investor-sentiment/2024/strategist-outlook
This material is provided for informational purposes only and
should not be construed as investment advice. Any opinions or
forecasts contained herein reflect the subjective judgments and
assumptions of the authors only and do not necessarily reflect the
views of Natixis Investment Managers, or any of its affiliates.
There can be no assurance that developments will transpire as
forecasted and actual results will be different. The information is
subject to change at any time without notice.
All investing involves risk, including the risk of loss.
Investment risk exists with equity, fixed-income, and alternative
investments. There is no assurance that any investment will meet
its performance objectives or that losses will be avoided.
Diversification does not guarantee a profit or protect against a
loss.
Day trading can be extremely risky and is generally not
appropriate for someone of limited resources or trading experience,
or for those with low risk tolerance.
Alternative investments involve unique risks that may be
different than those associated with traditional investments,
including illiquidity and the potential for amplified losses or
gains. Investors should fully understand the risks associated with
any investment prior to investing.
Credit Quality reflects the quality or rating of a fixed
income investment, such as a bond. Ratings are given by credit
rating agencies such as Moody's, Standard & Poor's, or Fitch.
Ratings are subject to change and are not a guarantee safety or
stability.
Sustainable investing focuses on investments in companies
that relate to certain sustainable development themes and
demonstrate adherence to environmental, social and governance (ESG)
practices; therefore the universe of investments may be limited and
investors may not be able to take advantage of the same
opportunities or market trends as investors that do not use such
criteria. This could have a negative impact on an investor’s
overall performance depending on whether such investments are in or
out of favor.
About the Natixis Strategist Outlook
The 2024 Natixis Strategist Outlook is based on responses from
30 experts including 25 representatives from 11 affiliated asset
managers, 4 representatives from Natixis Investment Managers
Solutions, and 1 representative from Natixis Corporate &
Investment Banking.
Mabrouk Chetouane
Head of Global Market Strategy
Natixis Investment Managers Solutions
Jack Janasiewicz, CFA®
Portfolio Manager and Lead Portfolio
Strategist
Natixis Investment Managers Solutions
Garrett Melson, CFA®
Portfolio Strategist
Natixis Investment Managers Solutions
Chris Sharpe, CFA®
Chief Investment Officer, and Portfolio
Manager
Natixis Investment Managers Solutions
Michael J. Acton, CFA®
Managing Director, Head of Research
AEW Capital Management
Francois Collet
Deputy CIO
DNCA
Jean-Charles Mériaux
Chief Investment Officer
DNCA Investments
Pascal Gilbert
Bond Fund Manager
DNCA Investments
Carl Auffret, CFA®
Fund Manager, European Growth Equity
DNCA Investments
Nitin Gupta
Managing Partner, co-CIO
Flexstone Partners
Michael Buckius, CFA®
Chief Executive Officer, President, Chief
Investment Officer, and Portfolio Manager
Gateway Investment Advisers
Adam Abbas
Portfolio Manager and Co-Head of Fixed
Income
Harris Associates
James Grabovac, CFA®
Municipal Bond Investment Strategist
Loomis, Sayles & Company
Brian P. Kennedy
Portfolio Manager, Full Discretion
Team
Loomis, Sayles & Company
Lynda L. Schweitzer, CFA®
Portfolio Manager, Co-Team Leader of
Global Fixed Income Team
Loomis, Sayles & Company
Craig Burelle
Global Macro Strategist, Credit
Loomis, Sayles & Company
Elisabeth Colleran, CFA®
Portfolio Manager, Emerging Markets Debt
Team
Loomis, Sayles & Company
Lynne Royer
Portfolio Manager, Co-Head of Disciplined
Alpha Team
Loomis, Sayles & Company
Andrea DiCenso
Co-Portfolio Manager, Alpha Strategies
Team
Loomis, Sayles & Company
Jens Peers, CFA®
CEO and CIO
Mirova
Hua Cheng
Portfolio Manager
Mirova
Rafael Calvo
Managing Partner, Chief Investment
Officer
MV Credit
Axel Botte
Global Strategist
Ostrum Asset Management
Philippe Waechter
Chief Economist
Ostrum Asset Management
Philippe Berthelot
CIO Credit Management & Money
Markets
Ostrum Asset Management
Alexandre Caminade
CIO Core Fixed Income and Liquid
Alternatives
Ostrum Asset Management
Mounir Corm
Deputy Chief Executive Officer and
Founding Partner
Vauban Infrastructure Partners
Chris D. Wallis, CFA®, CPA®
CEO, CIO, Senior Portfolio Manager
Vaughan Nelson Investment Management
Daniel Wiechert
Client Portfolio Manager
WCM
Christopher Hodge
Chief Economist, US
Natixis Corporate & Investment
Banking
CFA® and Chartered Financial Analyst® are registered trademarks
owned by the CFA Institute.
About the Natixis Center for Investor Insight
The Natixis Center for Investor Insight is a global research
initiative focused on the critical issues shaping today’s
investment landscape. The Center examines sentiment and behaviour,
market outlooks and trends, and risk perceptions of institutional
investors, financial professionals and individuals around the
world. Our goal is to fuel a more substantive discussion of issues
with a 360° view of markets and insightful analysis of investment
trends.
About Natixis Investment Managers
Natixis Investment Managers’ multi-affiliate approach connects
clients to the independent thinking and focused expertise of more
than 15 active managers. Ranked among the world’s largest asset
managers1 with more than $1.3 trillion assets under management2
(€1.2 trillion), Natixis Investment Managers delivers a diverse
range of solutions across asset classes, styles, and vehicles,
including innovative environmental, social, and governance (ESG)
strategies and products dedicated to advancing sustainable finance.
The firm partners with clients in order to understand their unique
needs and provide insights and investment solutions tailored to
their long-term goals.
Headquartered in Paris and Boston, Natixis Investment Managers
is part of the Global Financial Services division of Groupe BPCE,
the second-largest banking group in France through the Banque
Populaire and Caisse d’Epargne retail networks. Natixis Investment
Managers’ affiliated investment management firms include AEW; DNCA
Investments;3 Dorval Asset Management; Flexstone Partners; Gateway
Investment Advisers; Harris Associates; Investors Mutual Limited;
Loomis, Sayles & Company; Mirova; MV Credit; Naxicap Partners;
Ossiam; Ostrum Asset Management; Seventure Partners; Thematics
Asset Management; Vauban Infrastructure Partners; Vaughan Nelson
Investment Management; and WCM Investment Management. Additionally,
investment solutions are offered through Natixis Investment
Managers Solutions and Natixis Advisors, LLC. Not all offerings
are available in all jurisdictions. For additional information,
please visit Natixis Investment Managers’ website at im.natixis.com
| LinkedIn: linkedin.com/company/natixis-investment-managers.
Natixis Investment Managers’ distribution and service groups
include Natixis Distribution, LLC, a limited purpose broker-dealer
and the distributor of various US registered investment companies
for which advisory services are provided by affiliated firms of
Natixis Investment Managers, Natixis Investment Managers S.A.
(Luxembourg), Natixis Investment Managers International (France),
and their affiliated distribution and service entities in Europe
and Asia.
1 Cerulli Quantitative Update: Global Markets 2023 ranked
Natixis Investment Managers as the 17th largest asset manager in
the world based on assets under management as of December 31, 2022.
2 Assets under management (“AUM”) of current affiliated entities
measured as of March 31, 2024, are $1,321.9 billion (€1,224.9
billion). AUM, as reported, may include notional assets, assets
serviced, gross assets, assets of minority-owned affiliated
entities and other types of non-regulatory AUM managed or serviced
by firms affiliated with Natixis Investment Managers. 3 A brand of
DNCA Finance.
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Press: Kelly Cameron + 1 617-449-2543
Kelly.Cameron@natixis.com