As the second half of 2024 begins, market sentiment is overly optimistic despite underlying concerns, according to a survey by Natixis Investment Managers.
The first half saw positive markets with easing inflation and fading recession fears, but 67% of surveyed strategists shared that they believe this optimism might be premature.
The upcoming US presidential election is seen as the biggest risk to market stability, with 74% viewing it as a medium or high-risk factor and 60% predicting a negative market impact. Inflation remains a concern, with just 7% confident the Federal Reserve will hit its target by year-end, and only 37% expecting US rate cuts.
According to the survey, geopolitical issues like the Ukraine war, Gaza-Israel conflict, and US-China tensions are troubling 80% of strategists. Government debt is another concern, with 53% believing current debt levels are only sustainable short-term, posing long-term economic threats.
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Despite these worries, two-thirds of strategists said they favour the US market for returns in H2, with large-cap stocks and growth sectors, particularly tech, expected to lead. In Europe, financials and healthcare are seen as strong performers, though overall caution remains.
In fixed income, high credit quality bonds are preferred, with core government bonds and investment-grade corporates favoured in both the US and Europe. 60% of strategists said they think a diversified portfolio of 60% equities, 20% fixed income, and 20% alternatives will outperform the traditional 60/40 mix in H2.
Strategists predicted market impacts from AI over the next two to five years, with 73% expecting AI to change market patterns and 77% believing it will boost day trading. However, 93% are concerned about increased fraud and scams.
Half of the respondents shared that they believe sustainable investing will be driven by consumer demand over political pressure in the next two to five years. While 57% expect stronger but inconsistent regulations, only 10% foresee EU and US alignment. 67% think ESG scores will converge. Additionally, 60% expect impact investing to grow, with 50% saying asset managers need a net-zero commitment in Europe and Asia, though only 20% see it becoming standard in all portfolios within five years.
