Good prospects for the markets in the second half of the year

The first half of 2024 was quite positive for equity markets, especially in the United States, where indices hit new highs on several occasions. The forecasts for the next six months are generally equally optimistic.

The key to this is the combination of interest rates, macro data and corporate earnings. “Inflation data might be on the high side and interest rates may remain the same, but if business results go well, it wouldn’t be negative for the market. If the data is better and is accompanied by a rate cut, it would also be welcomed by the market. Whatever the case, everything seems to point to a good second half of the year,” highlights Alberto Matellán, chief economist at MAPFRE Inversión.

Tech stocks have risen sharply in recent months and now it’s time for a “more serious and clear-headed” analysis to separate the wheat from the chaff, while financial companies could continue to trade higher as their performance on the stock market depends on interest rate levels, and general economic growth, which impacts default rates. “Even if only one of these two factors were to remain good, we could stay on a positive track,” says Matellán.

Fixed income, for its part, didn’t enjoy the same luck as equities and failed to meet investors’ expectations, who expected more from this asset class. “Hopes were set based on a rate drop and that’s not to build a professional fixed income management business. Proper management involves providing stability to portfolios, and with the way rates are right now, that shouldn't be too difficult. We shouldn't focus on the capital gains that come our way with rate drops. The management margin is pretty healthy for what fixed income entails,” he highlights.

In the current context, most firms aren’t making major strategy changes. “There’s no need to make changes to the portfolio due to market timing, especially when summer is almost here. Investors should take advantage of this period to rethink their objectives,” highlights Matellán.

The French situation

France holds early legislative elections next Sunday, June 30, and a second round the following week, on July 7. MAPFRE’s chief economist explains that the elections are having an impact on the markets due to several economic problems that are coming to light, such as the high deficit level, which is combining with heightened investor speculation, in case the results deliver a surprise.

“The problem is that the economic programs make the case for projects that imply an increase in public debt and the deficit, and don’t explain very well how they are going to pay for them. We’ll have to wait and see what can feasibly be executed. There are significant difficulties in getting the proposed measures implemented,” he comments.