As 2024 passes its halfway point, market watchers are grappling with the artificial intelligence boom, high U.S. mega-cap stock valuations and uncertainty over interest rates, geopolitical events and the potential for economic slowing.
Strategists nonetheless have started to issue their midyear outlooks, offering insights on where the financial markets may be headed along with ideas for investors.
While more midyear forecasts will arrive in the next week or two, clients looking for direction may find value in these six recommendations, among others, that financial firms have issued so far.
1. Consider high-quality stocks.
Nuveen sees "widening cracks" in the investment landscape, given slowing growth, stick inflation and continued high interest rates.
"Amid these cracks, we suggest a focus on higher-quality equities, taking on selective credit risk in fixed income and leaning into real assets," the firm said.
"We also see opportunities in less-traveled areas such as floating rate investments and themes associated with clean energy transition."
Chief Investment Officer Saira Malik suggested:
"Step toward quality and scale back exposure to the ups and downs of the economic cycle. In equity markets, we're generally tilted toward higher quality and less cyclicality, given slowing economic growth and still-elevated inflation.
"U.S. large-cap dividend growth stocks and infrastructure companies look especially attractive. We're also increasingly favorable toward select opportunities in non-U.S. developed markets, especially Japan."
Nuveen also would consider taking a measured risk in some emerging markets, including China.
"In fixed income, we broadly favor adding credit risk while maintaining a neutral duration stance."
2. Look for opportunity in AI and geopolitical changes.
Jay Jacobs, BlackRock's U.S. head, thematic and active ETFs, noted in the firm's recent outlook that integration across industries was driving massive demand for AI Infrastructure, such as data centers, semiconductors and raw materials.
This buildout will require significant infrastructure investment across semiconductors, energy and metals like copper, he notes, suggesting "investors could be poised to unearth opportunities across industries."
BlackRock iShares strategists "believe investors may want to look beyond today's market leadership to find underappreciated areas that may be well-positioned to benefit from powerful secular tailwinds, or mega forces, that can potentially drive long-term growth."
In the short term, they wrote, two mega forces could reach critical inflection points: AI's transformative potential and the growing impact of geopolitics on trade and technology amid a global wave of elections.
Compelling opportunities lie in AI's "picks and shovels" and in potential beneficiaries of changing supply chains, including a domestic focus on tech and manufacturing, as well as emerging market up-and-comers, the report said.
3. Understand the AI 'stack.'
Capital Group, meanwhile, said the key to success for investors would be understanding the AI stack, which the firm describes as four layers of technology that enable AI to operate.
"Companies are jockeying for position at each layer: semiconductors, infrastructure, applications and the AI models themselves," according to the firm. "Alphabet, Meta and Microsoft are investing tens of billions of dollars to dominate multiple layers of the stack.
"While the big three are spending money on their own processors," the firm wrote, "leading chipmakers like NVIDIA, Broadcom and Micron should continue to maintain their market share dominance for years."
