In a recent survey of global market strategists, Natixis Investment Managers discovered that 47 per cent of respondents think geopolitical conflict is just as likely as consumer spending to be what ends the current market rally, making them the two top factors they’re watching.
Almost three-quarters (74 per cent) of strategists, meanwhile, see the US presidential election as the biggest risk to markets, and 60 per cent think the US election will more likely hinder than support the market.
In reality, Natixis said, politics rather acts as a “springboard” into what could disrupt the outlook for 2H24.
“The discussion may start with politics, but strategists recognise it is just the first layer of a complicated investment blueprint,” the firm wrote.
“Politics may present some key questions for strategists as they consider prospects for the rest of the year, but in the long run, economic and fiscal policy has more impact on their market perspective.”
As such, strategists are considering how policy will impact four key macroeconomic factors in global markets: inflation, interest rates, public debt, and economic growth.
Namely, almost half (47 per cent) of those surveyed categorised inflation as a “medium” risk for 2H24, while 17 per cent rated the risk as high.
Nonetheless, inflation is easing, albeit slowly, and the majority of respondents (63 per cent) said they are more worried about the number of rate cuts than the timing of any cuts.
“Most importantly, strategists think rate changes have to be managed across regions and are more worried that rate cuts will be under-coordinated (60 per cent) between central banks, rather than over-coordinated (40 per cent),” Natixis said.
Another key policy factor weighing on the minds of the strategists surveyed was government debt, which soared in the aftermath of massive cash injections to the economy worldwide during the pandemic.
In particular, 70 per cent of strategists said that government deficits matter when they evaluate markets. In terms of how it impacts their forecasts, responses were split: 53 per cent said that debt levels are sustainable now but pose a long-term threat to the economy, while 37 per cent believe levels are now unsustainable.
The rest (10 per cent) think debt levels are sustainable over the long term.
Beyond their focus on the US for risk and return potential, Natixis strategists also wager that the US economy will continue to lead Europe in terms of growth in the second half of the year, and that the latter will not be able to catch up to the US by the end of 2024.
Looking at China, where growth topped out at 5.2 per cent in 2023, less than one-third of those surveyed believe growth will recover this year, following the Chinese economy missing estimates of year-over-year growth of 5.1 per cent and coming in at just 4.7 per cent in 2Q24.
