Midyear Outlook 2024: Still Waiting for the Turn

Last Edited by: LPL Research

Last Updated: July 09, 2024

Get inside perspective from LPL Research as we navigate the economy and markets through the end of 2024.

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

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.

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.

LPL Research expectations

Action steps to consider

Slower spending

Softening labor market

Stay focused on your long-term investment strategy.

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.

LPL Research expectations	Action steps to consider
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
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
Potential for opportunity in certain sectors and regions	U.S. large caps with strong growth prospects (large caps are stocks from larger, well-established companies) Communications services, energy, and industrial stocks

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.

LPL Research expectations

Action steps to consider

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

Bond yields are still elevated and likely to say around current levels

Examine these investments and strategies to help generate income:

AAA-rated agency mortgage-backed securities
Preferred securities
Laddered portfolios
Holding individual bonds to maturity to take advantage of higher yields

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.

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Disclosures

The opinions, statements and forecasts presented herein are general information only and are not intended to provide specific investment advice or recommendations. There is no assurance that the strategies or techniques discussed are suitable for all investors or will be successful.

Any forward-looking statements including the economic forecasts herein may not develop as predicted and are subject to change based on future market and other conditions. All performance referenced is historical and is no guarantee of future results.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and does not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

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Investing involves risk including the potential loss of principal. Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.

Investing in stock includes numerous specific risks including the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market. Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate, and credit risk, as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.

Mortgage backed securities are subject to credit, default, prepayment, extension, market and interest rate risk. Preferred stock dividends are paid at the discretion of the issuing company. Preferred stocks are subject to interest rate and credit risk. As interest rates rise, the price of the preferred falls (and vice versa). They may be subject to a call feature with changing interest rates or credit ratings.

The fast price swings of commodities will result in significant volatility in an investor’s holdings. Commodities include increased risks, such as political, economic, and currency instability, and may not be suitable for all investors. Precious metal investing is subject to substantial fluctuation and potential for loss.

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