Midyear Outlook 2024: Still Waiting for the Turn
Here we are, at the midpoint of 2024. If we had to provide one word that defines the first half it would, it would be resilience. That resilience has continued to fuel the trends we saw in late 2023 — economic growth mixed with stubborn, but decelerating inflation. It’s tempting to say the growth trajectory will continue, but we believe the economy will soften in the second half, which will naturally have domino effects across the investing arena.
From the markets and upcoming U.S. election to the conflicts overseas and everything tied to these things, it’s a lot to make sense of. That’s exactly why LPL Research created this report. Full of insights and potential action steps, it’s specifically geared for you — so that you and your financial professional can apply insights to your own goals.
"The economy looks poised to cool down, which will impact policy and markets. We already see a decrease in big-ticket purchases."
- Marc Zabicki, Chief Investment Officer, LPL Financial
Economy: We have a delayed landing, but still a landing
What drove the resilience in the economy in the first half? Or maybe the better question is “who drove all that resilience?” For the answer, we look to the nearly one-third of homeowners who refinanced during the pandemic and had more disposable income, in combination with high-income consumers who aren’t as sensitive to higher rates.
As the economic distortions from the pandemic have played out, it’s taken longer than anticipated but finally, we’re starting to see signs of change. We expect the beginnings of a measured economic slowdown to begin in the latter half of 2024, which should provide the path for the Federal Reserve (Fed) to cut rates — once the data convincingly shows it.
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LPL Research expectations |
Action steps to consider |
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Slower spending Softening labor market |
Stay focused on your long-term investment strategy. |
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Rate cut before year end |
Keep an eye on interest rates. Rents and mortgage rates may come down. We expect home prices to stay steady, given tight inventory. |
Stock market: Second half gains are already factored in
Stocks soared in the first half of the year, thanks to the strong economy and the prospect of lower interest rates. The S&P 500 started the year at 4,742 and reached a new high in June — making back all the declines from 2022 and then some.
The strength in the stock market has clearly been impressive, but it also means that a lot of the good news may have already been factored in, as the markets are forward looking. And with valuations high, future gains will rely heavily on earnings growth continuing to positively surprise. There may be some gains but be prepared for potential setbacks along the way — between geopolitical risks and the upcoming presidential election, volatility should rise.
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LPL Research expectations |
Action steps to consider |
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Market volatility will rise |
Shore up your portfolio so you’re ready to withstand market fluctuations Stay invested regardless of who wins the election — pulling money out has historically led to lower portfolio growth |
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S&P 500 will end the year between 4,850 – 4,950, lower than June’s high |
Don’t feel a need to chase. Be patient and disciplined, buy on dips if you’re looking to add to stock exposure |
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Potential for opportunity in certain sectors and regions |
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Bond market: “Boring” bonds deserve another look
Traditionally, investors sought out fixed income like bonds for their income-generating capability. It’s been a difficult few years for bonds, but after bond yields peaked in the fall of 2023, bonds returned to doing what they do best — offering attractive risk-adjusted returns. Granted, cash has been an option since the Fed started raising interest rates. But once the Fed starts cutting rates, it will lower rates on cash accounts.
Higher quality bonds offer the ability to continue capitalizing on those higher rates, without taking on excessive levels of risk. Plus, bonds can offer some diversification and potential preservation to portfolios, which is something to keep in mind, since we expect the stock market to be more volatile the second half of the year.
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LPL Research expectations |
Action steps to consider |
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Rates on cash accounts will decrease when the Fed cuts interest rates |
Replace some cash holdings with bonds to lock in higher yields for longer |
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Bond yields are still elevated and likely to stay around current levels |
Examine these investments and strategies to help generate income:
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Finding your angle of opportunity
The first half of the year, and the unexpected resilience that came with it, confirms why we believe it’s so important to have an idea of the road ahead. It sets you and your financial professional up to navigate the twists and turns that will inevitably arise and do so in a way that’s true to your north star — achieving your financial goals, dreams, and aspirations. Because at the end of the day, that's what it's all about.
If you’d like to delve deeper and get detailed investment analysis, including insights on geopolitics, commodities, currencies and more, read the full report here.