Transcript: Anticipating Fed moves is investing linchpin
Jack Manley of J.P. Morgan Asset Management says global economic convergence has not played out as expected this year
- Featuring: Jack Manley
- July 2, 2024 June 20, 2024
- 13:01
iStockphoto/matejmo
Jack Manley
Welcome to Soundbites, weekly insights on market trends and investment strategies, brought to you by Investment Executive and powered by Canada Life. For today’s Soundbites, we speak with Jack Manley, vice-president and global market strategist with J.P. Morgan Asset Management. We talked about the investment landscape at the halfway point of 2024, and how 2024 is shaping up so far.
Jack Manley (JM): I would say we are not quite where we thought we’d be at the start of the year. The U.S. [is] really showing signs of unexpected resilience, and a lot of other countries and regions sort of continuing that disappointing streak that we saw start in 2023. You have a lot of problems in a lot of economies around the world. Japan entered a recession in the back half of last year. The U.K. entered a recession. And now you have Europe sort of confusing a lot of folks with the results of the parliamentary elections that happened very recently. Turning insular, generally speaking, is challenging. Europe may slow down. So our thesis at the start of the year was converging global growth. I think we are sort of seeing that happen. We’re still heading towards the middle. It’s just not nearly as profound as what we would have expected only a few months ago.
Sectors he’s watching
JM: We are somewhat sector agnostic right now, especially from a tactical perspective, looking out over the duration of the year, even into the first half of 2025. The equity market recovery in the United States has been extraordinary, pretty handily beating out most other equity markets, at least in U.S. dollar terms since the start of the year. But it’s also been very narrow, a story, really, of just a small handful of names doing the overwhelming majority of the heavy lifting. These massive, mega cap, multinational tech and tech-adjacent names, domiciled in the United States that are gassed up on this idea that interest rates are going to move lower, and that artificial intelligence has the potential to just fundamentally transform the world. That’s been the thesis behind so much of the recovery that we’ve seen so far. What we think for the rest of this year is that you’ve got to remember that there are another 490 plus names in the S&P 500 that haven’t really done a whole lot of anything over the last 18 months. They are trading at much more reasonable valuations. They are punching above their weight class from an earnings contribution perspective. And when the pond that you’re fishing in is that big, you don’t want to limit yourself to any one particular sector. You’re going to find what you’re looking for in growth and in value. You’re going to find it agnostic of style box. So this is a great market for active managers.
Risks on the horizon
JM: I think there are a few key risks right now. One of them is that AI does not do what it promises it’s going to do. So much of this equity market has been driven by AI exuberance. If AI does not do what it’s supposed to do, that is a big risk to where we are in markets right now. The market may sell off. Another risk that I think we are dealing with at the moment is that the geopolitical situation worsens one way or the other. When I look at the conflict that’s going on in the Middle East right now, and I see the potential for petrostates to get directly involved in this conflict, what does that do to the cost of a barrel of gasoline? That instantly means a recession. It also means a resurgence in inflation that may be durable. So that is a big structural risk, I think, right now. And then the third thing, as we see India march towards industrialization and try to pick up the slack that China is leaving behind, there may be some roadblocks out there that we aren’t fully appreciating. India has a lot going for it on paper. Its working age population is actually growing. It’s made a lot of investment into industrial infrastructure. It has lowered taxes for new businesses. And it is friendlier towards the west and Western interests. But India has its own sorts of issues. They are a growing economy. They are talking to both sides of the aisle here, as is their prerogative. And we always have to remember when it comes to investing in markets like that, if it was easy and straightforward, you wouldn’t be looking at those potential equity returns, right? The reason you are getting compensated like that is because there is a whole lot more risk associated with emerging markets in general, and I think India in particular.
And finally, making the most of the 2024 investment year.
JM: I think if you’re trying to have a view on global markets, you have to be able to have some sort of clarity on Fed policy. If you have a firm or firm-ish idea on interest-rate policy, then you can have some clarity on what money is going to cost. You can have clarity on the potential for consumption, investment, valuation levels, future earnings growth expectations, future coupons. That, to me, is the linchpin. It’s the one thing that everybody’s got to have a view on.
Well, those are today’s Soundbites, brought to you by Investment Executive and powered by Canada Life. Our thanks again to Jack Manley of J.P. Morgan Asset Management. Visit us at investmentexecutive.com, where you can sign up for our a.m. newsletter and never miss another Soundbite. Thanks for listening.
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