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  • Writer's pictureRealFacts Editorial Team

Investing in the Second Half of 2024 with a “Goldilocks Economy”


Goldilocks economy photo

The Concept of the Goldilocks Economy 


A “Goldilocks Economy” is a state where economic growth is moderate—not too fast to spur inflation, nor too slow to cause a recession. We can see that in the US where inflation and rates have been relatively stable these past couple of months, with continuing equity market growth. This balanced growth often leads to positive stock market performance, as expectations are met or expectations are slightly successful the results don't result in as much of market volatility or drama within the market. 


Here are a few Catalysts positive and Negative that lead us to believe we are in a Goldilocks Economy. 


Positive Catalysts 


1. Recession Fears Easing: Concerns about an imminent recession have diminished.

2. Declining Inflation: While inflation remains above target levels, it has decreased significantly.

3. Recovering Earnings: Some markets are seeing a rebound in earnings, while others are experiencing a slower decline. 

4. Reduced Geopolitical Tensions: Though risks persist, they are perceived as less immediate.

5. Attractive Valuations: There is potential for a shift towards underperforming sectors such as small caps, value stocks, and markets in Europe and emerging economies, promoting a more balanced market landscape.


Negative Catalysts 


1. Slowing Economic Growth: Leading economies are experiencing a deceleration in growth. 2. Political Uncertainty: Upcoming elections in the US, UK, and Europe are causing market jitters, with rising populism potentially leading to more protectionist policies. 

3. Disappointing Election Outcomes: Recent elections in India and Mexico have not met investors' expectations. 

4. AI Investment Concerns: There is growing anxiety that the current wave of AI-related investments might abruptly end, posing risks to big tech valuations and the broader market. 

Despite the balancing of these catalysts, maintaining diversification across various industries and sticking to high-quality companies is crucial. The persistent high interest rate environment makes low-quality, speculative stocks particularly risky. 


The Second Quarter and Half-Time Report 


The anticipated soft landing has largely materialized in the second quarter. The International Monetary Fund (IMF) has maintained its global GDP growth forecast at 3.2% for 2024 and 2025, expecting a slowdown in the US and Asia to be offset by faster growth in Europe and non-Asian emerging economies. 


Inflation Trends: Global inflation has either fallen or stabilized, boosting confidence and easing pressure on corporate profits. Central banks have started cutting rates where inflation is near target levels, though the US, UK, and Australia have deferred rate cuts due to persistent inflation.

Bond Yields: Bond yields peaked in April or May but remain high. 

Equity Markets: AI and big tech have continued to dominate, with indexes exposed to major tech companies outperforming, for example with Taiwan’s Stock market index (TWSE), which is highly weighted with Semiconductor stocks, has performed exceptionally with a 28.5% gain YTD. Other equities have seen modest gains, with some markets affected by unique local factors. 


You can Study the graph below of the major world indexes performance YTD with MSCI world, the Nasdaq, and Japan in the lead.



Regional Insights


North America: 

US: Rising earnings across most sectors have benefited US equities, despite delayed rate cuts. However, gains are mostly concentrated in big tech, with small-cap indexes underperforming.

Canada: Corporate earnings have declined over the past 18 months due to reduced revenue and margin pressure. While earnings are now falling at a slower rate, investor optimism is returning. Current valuations may seem high but could be justified if earnings rebound. 


Europe: 

Europe’s economic recovery has been slow, hampered by high energy costs, interest rates, and weak export demand. However, falling energy prices and inflation, along with the European Central Bank's first rate cut, have improved the outlook.

Corporate earnings are beginning to recover in some areas, particularly in France. There is significant variation in profit trends across sectors and industries within European markets. Improved GDP growth and lower relative valuations could support European markets moving forward. 


Asia-Pacific: 

India and Japan: Both countries continue to see rising corporate earnings and strong fundamentals, although momentum has slowed, and Japan’s index declined in the second quarter.

Korea: Earnings are recovering, while other markets are experiencing declines.

Australia and New Zealand: Both economies are struggling with high interest rates and persistent inflation. Lower consumer sentiment and spending, coupled with weaker export demand from China, are significant challenges. Rate cuts could improve sentiment and economic conditions. 


Going into the Second Half of 2024 


Heading into the second half of 2024, the economic landscape is characterized by a mix of positive and negative factors. Investors should prioritize diversification and focus on high-quality companies to navigate this complex environment. The balance of risks and rewards emphasizes the importance of strategic investment choices in a dynamic global market.

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