Market outlook

2024 midyear investment outlook: opportunities amidst divergence

At the mid-way point of 2024, divergence between individual economies has re-emerged as a theme. How will key economic factors play out and what will the impact on markets be?

The global economy is in a soft patch. But, despite widespread expectations of a global economic slowdown in 2024, growth and inflation have performed above expectations across most major economies. Divergence has re-emerged as a theme, with individual economies likely to see various growth and inflation experiences going forward.

  • Kristina%20Hooper,%20Invesco%20Chief%20Global%20Market%20Strategist

    "Our outlook for the rest of the year centres on the path of inflation and how central bankers weigh the balance of risks in beginning to ease monetary policy."

    Kristina Hooper, Invesco Chief Global Market Strategist

We believe demand-side resilience has delayed the disinflation narrative across major western economies, particularly in the US. We continue to anticipate falling inflation over the forecast horizon across most economies. Disinflation is likely to happen more quickly in non-US developed market economies. This trajectory may only elicit marginal rate cuts from major developed market central banks though.

The pass-through effect from central bank policy tightening has taken longer than expected and is being felt most at the margins. This includes a modest increase in credit card balances and rising delinquencies in the US.

Eurozone: economic growth bounces back; we expect interest rate cuts soon

The eurozone economy has diverged from the US in some significant ways. Over the last several years, US growth has been stronger than eurozone growth. Recently though, eurozone economic momentum has been improving relative to the US, despite numerous geopolitically induced economic headwinds - including the Russia-Ukraine war.

Now, we’re seeing a substantial pick-up in positive economic surprises. And while there had been significant divergence in economic activity between northern and southern Europe (with the South outperforming), recently we have seen improvement in northern Europe – particularly Germany. Forward-looking indicators suggest a continued pick-up in growth towards trend rates.

Recently, we’ve also seen more disinflationary progress in the eurozone relative to the US. Core inflation has moved closer to target. Services inflation, while still elevated, has moderated. The eurozone labour market has loosened somewhat. Consumer inflation expectations have moderated as well and can be considered well-anchored.

With inflation close to central bank targets, the European Central Bank (ECB) has started loosening policy and made its first interest rate cut. Gradual easing is likely to follow.

We anticipate that the start of interest rate cuts in the eurozone will support the growth pick-up. Overall, our near-term European outlook anticipates a modest acceleration in growth. This will be helped by rising real wages, with a return to trend growth gradually over the rest of this year.

When it comes to emerging market (EM) Europe, we see a continued reduction of high inflation levels. We believe economic growth will be below-trend (but improving) and will be higher than in developed markets.

The UK: growth less abundant, but economic activity on the up

In the UK, we expect the economic trajectory to be similar the Eurozone but with more muted growth given its country-specific headwinds, like the lingering effects of Brexit. Economic activity has been improving recently, reflecting a modest recovery as forward measures have been picking up. Inflation has also been improving, but to a lesser extent than what has been seen in the Eurozone.

It looks like the Bank of England will begin to cut rates later than the ECB, but we still expected it to cut interest rates at least once before the end of the year. High wage and services inflation remains a challenging backdrop that could limit further easing.

Markets at a glance

Though divergence underpins our outlook, we see opportunities across key asset classes. 

Fixed income

With bond yields sitting near their highest levels in decades, we believe bonds also offer attractive opportunities despite tight spreads, especially for longer holdings periods. We do note that developed European rates are lower than in the US, but they are still substantial.


Monetary policy easing should be supportive of risk assets in general but particularly in the eurozone and UK where equity valuations are more attractive than in the US, and where there is a larger exposure to cyclicals and a larger concentration in the value factor, which tend to do well when economies recover.

Private markets

High yields and near zero duration make loans and private credit attractive in a “high for longer” environment. Real estate funds' valuations are near trough levels. Private equity general partners (GPs) are highly incentivised to ramp up deployment as dry powder ages.

Investment implications: silver linings for risk assets, bonds and private credit

The UK stock market has a substantial weighting in resource-related stocks (energy and metals and mining) and we expect it to benefit from the strength in commodity prices. 

There’s a general election in the UK on 4 July 2024. While this could bring uncertainty, it could support the stock market and sterling if a sense of optimism takes hold in the same way it did in 1997 (when there was last a switch from a longstanding Conservative government to Labour).

European and UK companies have substantially increased their stock buybacks, which could provide another tailwind for European and UK equity markets.

Strong fundamentals underpin many fixed income assets, helping to explain extremely tight credit spreads in both investment grade and high yield credit. To take advantage of the resilient and improving growth backdrop, we favour some credit risk to take advantage of this environment. Interestingly, European high yield markets appear less stretched than their US counterpart (judging by spreads). We also see relative value in European investment grade.

We also like the diversification properties of European bank loans, which tend to have similar volatility to investment grade credit but with greater return potential (in our opinion) due to the high current yield. With near-zero duration, loans have also been relatively immune to recent interest rate volatility compared to other fixed income asset classes.

We also anticipate strong performance from EM European equity and sovereign debt. We also look favourably upon European real estate, where we believe that significant negative sentiment is already reflected in the price, and there is meaningful upside potential as the environment improves.  

Investment risks

  • The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.  

Important information

  • Views and opinions are based on current market conditions and are subject to change.

    This is marketing material and not financial advice. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication.

    EMEA 3615713/2024

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