While global monetary policy appears to have decisively shifted, equities markets may still face increased volatility in the second half of 2024 as markets grapple with a series of uncertainties, says Desjardins Group.
In a new report, the bank’s economists noted that, with the start of rate cuts by a number of central banks, a key uncertainty has been lifted from the stock and bond markets.
“But that doesn’t mean the skies have cleared,” it cautioned.
For instance, market volatility spiked recently as U.S. recession fears re-emerged in the wake of weaker-than-expected jobs data.
“Although we don’t anticipate a U.S. recession, we believe that risks persist for stock market returns,” the report said. It noted that slowing economic growth could cut into corporate profits, which have been richly priced by markets.
“U.S. stock valuations are near their cyclical peaks, which sets the bar very high for future earnings growth,” the report said.
Tech stock valuations are particularly high, it noted.
“Even with the continued rise in earnings and strong growth prospects, the U.S. index still seems to be greatly overvalued compared to historical levels,” the report said.
While the general direction of monetary policy seems clear, the speed and timing of rate action remain uncertain.
For instance, in Europe and the U.K., the pace of interest rate cuts “will likely be gradual and uncertain, which could continue to fuel market volatility,” the report noted.
A variety of other geopolitical risks are looming too.
“The U.S. presidential election and the escalating conflict in the Middle East could also spark more uncertainty and volatility,” the report said.
Capital gains tax hike results in rate inversion for some Canadians
Top earners in four jurisdictions may face a higher tax rate on capital gains than on eligible dividends