· U.S. growth surprised to the upside through 2023 and continues to be on solid footing entering 2024, although vulnerabilities are starting to emerge.
· Consensus expectations for six rate cuts appear ambitious and Fed policy will likely be less dovish than anticipated entering the year.
· Job market growth has stayed strong, defying skeptics anticipating a slowdown. The unemployment rate has been steady at sub-4% and wage growth has moderated but is squarely in positive territory.
· A healthy job market supported a resilient consumer and helped drive consumer confidence to its highest level since
the end of 2021.
· Elevated U.S. equity market valuations and limited market breadth leave markets susceptible to deviations from the ‘soft-landing’ playbook.
· At ~20x forward P/E for the S&P 500, forward returns will need to be powered by earnings growth vs. multiple expansion. So far, Q4 reports have been mixed with limited and low magnitude positive earnings surprises.
· Lower valuations and different index compositions abroad are supportive for international equity markets, although the prospect for multiple expansion is uncertain.
· China’s economic growth poses significant challenges for emerging markets in 2024 and heightened geopolitical risks will likely continue to affect capital flows throughout the year.
· The great reset in rates over the past 24 months has caused near-term pain but paves the way for longer-term gains in
fixed income when rates moderate. Higher base rates and less rate volatility should result in smoother sailing.
· Still elevated yields but tight spreads support a more balanced positioning in fixed income with an orientation towards higher quality, more defensive assets.
· 2023 was a golden year for private credit with higher base rates and limited defaults. 2024 looks promising but falling base rates and the potential for stress emphasize the importance of manager selection.
· With cap rate headwinds abating, 2024 could be a more constructive year for private real estate assets, although challenges remain. Notably, sector divergences are still wide (ex. Office) and rent growth is slowing in many markets.


June 10, 2024

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