Horizon Q2│2024

Prof Dr Bernd Meyer and team provide an outlook for the second quarter of 2024 in the current Horizon publication.

Key statements of the outlook

2024 starts positively

Equity markets have moved on from the recession versus soft landing debate and are already pricing in a very favourable long-term outlook for the economy and corporate earnings. For further upside, equities need higher earnings.

Rate cuts despite economic recovery

With a global economic recovery on the horizon and the first interest rate cuts in the second quarter, long-term bond yields are unlikely to fall much, yield curves will steepen, market breadth will increase, and small caps and commodity prices will recover.

Maintaining balance

The risks to this favourable scenario are manifold: stubborn inflation, geopolitics, too optimistic sentiment, high investor positioning and the US elections. A balanced positioning after the strong start to the year is therefore advisable.

Dear readers,

Equity markets have had a surprisingly positive start to the year. After a bumpy first two to three weeks with losses of up to two percent, despite rising bond yields and diminishing expectations of interest rate cuts, there were strong price gains – remarkably driven by higher equity valuations. The robust US economy and positive fourth-quarter earnings reports in the US provided support. The results from major technology stocks have rekindled the AI euphoria. Equity markets thus appear to have moved on from the recession versus soft landing debate and are already pricing in a very favourable long-term economic and earnings outlook. This is the only way to reconcile the simultaneous rise in real yields and equity valuations. However, market breadth remains low.

How likely is this positive outlook? The risk of a hard landing for the US economy has diminished in the short term. The initially unlikely scenario that inflation can be brought down without triggering a recession is looking increasingly likely. There have been recent positive economic surprises in the US, the eurozone, Japan and China. Our economists are cautiously optimistic that the global economy will recover beginning in the second quarter. In addition, market expectations for interest rates and inflation have now become much more realistic. For 2024, only half as many rate cuts by the Fed and the ECB are priced in now than at the beginning of the year. We believe that the scope for longer-term rate cuts is limited given the structural drivers of inflation, but we expect the Fed and the ECB to cut rates towards the end of the second quarter. If this happens against the backdrop of a recovering economy, long-term bond yields are unlikely to fall much and yield curves will steepen again. A further sharp rise in valuations, especially for US equities, is then unlikely. Equity markets will therefore need higher earnings to realise further potential. If the global economy recovers and interest rates start to fall, market breadth should increase and (especially European) small caps and commodity prices should recover. Read the interview with our small and micro-cap fund manager, Peter Kraus.

However, there are many risks to this scenario (such as more persistent inflation, geopolitics). Even if it materialises, there are likely to be several obstacles along the way (such as too optimistic sentiment, high investor positioning, US elections). In the second quarter, the typically positive April seasonality and the first interest rate cuts by the Fed and the ECB, possibly in June, could continue to support markets, even if the upside potential appears limited. Then the summer seasonality and uncertainty ahead of the US elections are likely to lead to higher volatility from mid-year. Similarly high risk-adjusted return expectations across asset classes and the prevailing uncertainty make balanced positioning at the asset class level more important than before. We believe the opportunities lie beneath the surface.


Prof. Dr. Bernd Meyer
Chief Investment Strategist and Head of Multi Asset
Phone +49 69 91 30 90-225