A look back at recent macro and market trends

A look back at recent macro and market trends

hamilton-derek

Derek Hamilton

  • Managing Director, Economist – Ivy Equity Boutique
  • Read bio

Every quarter, we release Inside the markets, a chart-powered guide that provides a detailed look into macroeconomic developments, equity market insights, and fixed income trends.

As a part of the guide, we also summarize our observations and takeaways from the previous quarter as it relates to the key topics on investors’ minds:

  1. The US economy remains firm. Consumer spending is growing at a healthy pace and employment is improving. Despite weaker indications from surveys, business investment is holding up better than expected. Government spending continues to be a tailwind for the economy. As a result, real GDP growth has been strong in the most recent recovery and may continue to follow this trend.
  2. Inflation continues to move lower, albeit at a slower pace, and the US Federal Reserve (Fed) is signaling interest rate cuts later this year. However, that will depend on the progression of inflation. Any disappointment on inflation will likely push out the timing of rate cuts. At the same time, the Fed plans to slow the pace of balance sheet reduction later this year, which would allow it to respond to tight liquidity in the banking system should bank reserves fall to untenable levels.
  3. European growth is recovering after euro-area economies slowed less than expected. Inflation has moved lower, especially in the euro area. This has caused the European Central Bank (ECB) and the Bank of England (BoE) to stop raising interest rates and should allow rate cuts later this year.
  4. The Chinese economy continues to grow at a disappointing pace, and the housing market is still contracting. Easier policy has not been forceful enough to significantly boost the economy yet.
  5. US equity markets have remained strong, particularly large-cap stocks. Market breadth continues to be narrow, as relatively few stocks drive the performance. Market multiples seem elevated when compared to historical trends, other global equity markets, and the current level of interest rates.
  6. Fixed income markets were more mixed, as higher interest rates and inflation concerns weighed on certain segments. US high yield and investment grade spreads remain very tight.

Looking ahead, although we are less convinced of an impending recession, we are concerned about the continued strength in the US economy. As we recently pointed out, a no-landing scenario where US GDP continues to grow above its potential could renew inflation pressures, causing the Fed to raise rates further.

Real GDP (year-over-year % change)

Real GDP (year-over-year % change) Chart

Note: Shaded areas on the chart represent a recession.

Sources: Macrobond, US Bureau of Economic Analysis (BEA), US Congressional Budget Office (CBO), International Monetary Fund (IMF).

Chart is for illustrative purposes only.


Inside the markets

Chart-powered guide with macroeconomic perspectives and insights on the markets

Access here

[3525418]

This market commentary has been prepared for general informational purposes by the author, who is part of Macquarie Asset Management (MAM), the asset management business of Macquarie Group (Macquarie) and is not a product of the Macquarie Research Department.

This market commentary reflects the views of the author and statements in it may differ from the views of others in MAM or of other Macquarie divisions or groups, including Macquarie Research. This market commentary has not been prepared to comply with requirements designed to promote the independence of investment research and is accordingly not subject to any prohibition on dealing ahead of the dissemination of investment research.

Nothing in this market commentary shall be construed as a solicitation to buy or sell any security or other product, or to engage in or refrain from engaging in any transaction. Macquarie conducts a global full-service, integrated investment banking, asset management, and brokerage business. Macquarie may do, and seek to do, business with any of the companies covered in this market commentary. Macquarie has investment banking and other business relationships with a significant number of companies, which may include companies that are discussed in this commentary, and may have positions in financial instruments or other financial interests in the subject matter of this market commentary. As a result, investors should be aware that Macquarie may have a conflict of interest that could affect the objectivity of this market commentary. In preparing this market commentary, we did not take into account the investment objectives, financial situation, or needs of any particular client. You should not make an investment decision on the basis of this market commentary. Before making an investment decision you need to consider, with or without the assistance of an adviser, whether the investment is appropriate in light of your particular investment needs, objectives, and financial circumstances.

Macquarie salespeople, traders and other professionals may provide oral or written market commentary, analysis, trading strategies or research products to Macquarie’s clients that reflect opinions which are different from or contrary to the opinions expressed in this market commentary. Macquarie’s asset management business (including MAM), principal trading desks and investing businesses may make investment decisions that are inconsistent with the views expressed in this commentary. There are risks involved in investing. The price of securities and other financial products can and does fluctuate, and an individual security or financial product may even become valueless. International investors are reminded of the additional risks inherent in international investments, such as currency fluctuations and international or local financial, market, economic, tax or regulatory conditions, which may adversely affect the value of the investment. This market commentary is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in this market commentary. Opinions, information, and data in this market commentary are as of the date indicated on the cover and subject to change without notice. No member of the Macquarie Group accepts any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this market commentary and/or further communication in relation to this market commentary. Some of the data in this market commentary may be sourced from information and materials published by government or industry bodies or agencies, however this market commentary is neither endorsed or certified by any such bodies or agencies. This market commentary does not constitute legal, tax accounting or investment advice. Recipients should independently evaluate any specific investment in consultation with their legal, tax, accounting, and investment advisors. Past performance is not indicative of future results.

This market commentary may include forward-looking statements, forecasts, estimates, projections, opinions, and investment theses, which may be identified by the use of terminology such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “can,” “plan,” “will,” “would,” “should,” “seek,” “project,” “continue,” “target,” and similar expressions. No representation is made or will be made that any forward-looking statements will be achieved or will prove to be correct or that any assumptions on which such statements may be based are reasonable. A number of factors could cause actual future results and operations to vary materially and adversely from the forward-looking statements. Qualitative statements regarding political, regulatory, market and economic environments and opportunities are based on the author’s opinion, belief, and judgment.

Investing involves risk including the possible loss of principal. The investment capabilities described herein involve risks due, among other things, to the nature of the underlying investments. All examples herein are for illustrative purposes only and there can be no assurance that any particular investment objective will be realized or any investment strategy seeking to achieve such objective will be successful.

Past performance is not a reliable indication of future performance.

Inflation is the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Central banks attempt to stop severe inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a minimum.

All third-party marks cited are the property of their respective owners.