Investors should generally consider investing in alternative investments, for example, investments that are resistant to the volatility of the broad market or to inflation shocks. Read more about this in the new «Guide to the Markets».

J.P. Morgan Asset Management’s «Guide to the Markets» provides client advisors and professional investors with targeted support for making the best investment decisions. 

 

Too Early For a Victory Lap

Western economies have been remarkably resilient in the face of higher interest rates (Guide to the Markets – Europe page 4). We would argue this is in part due to the «long and variable lags» in the transmission of monetary policy (pages 21 and 37).

The good news is that inflationary pressures are easing (pages 6 and 7) and therefore central banks can pause or even cut interest rates should economic data deteriorate meaningfully (page 8). We still expect 2024 to be a period of weaker economic activity, particularly in the US where consumer spending has been unsustainably strong (page 17).

Locking in Yields

The interest rate narrative has shifted from «how high will they go?» to «when will they be cut?» (pages 20 and 32). This is supporting bond prices (page 73). It seems prudent to lock in the yields now available on high-quality fixed income (page 64).

If there is a degree of resilience in the economy, investors will earn a decent coupon, but if the economy cracks and interest rates have to be cut substantially then the upside on core government bonds could be meaningful (pages 67 and 72).

Equities: Problems at the Margins

Equity markets performed well in 2023 as fears of a hard landing receded (page 63). However, expectations of expanded margins and sales into next year could be challenged if economic activity does weaken (pages 46 and 62). Investors should note that US stocks trade at a record premium to those in Europe and emerging markets (page 45).

Given the prospect of economic convergence and election uncertainty in 2024, investors may wish to consider whether they have appropriate geographic diversification.

Targeted Alternatives For Targeted Risks

Structurally, we think investors should consider what alternative assets can bring to a portfolio that traditional public markets lack, such as those assets that are resilient to broad market volatility or inflation shocks (pages 76 and 77).