- Corporate profits on an upswing. We are keenly focused on corporate profits returning to growth, particularly in the US. While somewhat rare historically, we believe that a soft landing is occurring in the US, with US real economic growth positive, unemployment relatively stable, and core inflation moving toward 2.5% by mid-2024.
- US dollar may wobble. We anticipate easier financial conditions in the US, especially when the Fed starts to ease interest rates. Typically, such an environment fosters US dollar weakness. This could bolster some emerging market (EM) currency returns.
- Corporate bonds may offer yield advantage. With spread compression less likely, we believe investors should be able to harvest a potential yield advantage that corporate bonds offer relative to Treasurys. US high yield credit could be an opportunity for equity-like returns.
- Rate hikes are largely over. Inflation will likely dictate just how much central banks can reduce rates. But, developed market longer-term yields could slide lower in 2024. We are constructive on US duration and expect the 10-year yield to find fair value around 3.5% by fall 2024.
- Emerging markets earnings recovery? A strong recovery in EM earnings could occur after the weak stretch of the past several quarters of 2023. The Loomis Sayles equity sector team currently forecasts 2024 EPS growth of 6.0%.