Global chief investment officer Michael Strobaek at Swiss private bank Lombard Odier discusses the outlook for the US economy and global equity markets in 2024.

In the space of a few days, financial markets went from discounting a soft-landing scenario for the US economy to fearing a hard landing and rising recession risks, causing stock markets to tumble and a big tech sell-off. However, Michael Strobaek at Lombard Odier expects equity markets to see some stabilization ahead of the next US labor market report and the September US Federal Reserve meeting.

He expects the Fed to cut interest rates at each of its remaining meetings this year, in September, November and December. The August jobs report will likely inform the magnitude of the September cut, whether it will be by 25 or 50 basis points. Despite some softening in the labor market, Strobaek believes that the US economy and consumers are in relatively healthy shape, and sees limited recession risks.

He highlighted how the recent correction in tech stocks has been centered around semiconductors, the part of the market which was most overbought, or where prices had previously moved up fastest. Share prices of tech hardware and software companies have held up better. Following the correction, Strobaek expects markets with large semiconductor exposures such as Taiwan to stabilize over the coming weeks.

Nevertheless, Strobaek emphasized how geopolitical risks in the Middle East have increased after the assassination in Tehran of Hamas political leader Ismail Haniyeh. The prospect of Israel and Iran ending up in a confrontation with the region becoming involved in a wider-scale conflict that impacts several countries, including the US, is causing concern. “The US presidential election campaign should also prove a focal point of uncertainty for markets in coming weeks,” he said. Strobaek thinks volatility will persist in the coming months.

Asset allocation
In view of this, Strobaek keeps equities at strategic asset allocation levels for now. He expects high dividend-paying stocks, including those in the energy sector, and attractively valued regions to outperform. Among his most preferred regions, he favors UK equities, which he thinks offer both an attractive valuation, and an improving growth outlook. He is not alone in his views. Alec Cutler, portfolio manager at Orbis Investments, also sees value in the UK market, believing it to be undervalued, and he is heavily overweight in it. See more commentary here.

Strobaek also believes that the rethink longevity theme, focused on population aging, will outperform. Strobaek sees the market setback as an opportunity to build exposure to these multi-year, high conviction themes.

In currencies, he expects the Swiss franc to remain strong, particularly against the euro. He also expects the Japanese yen to continue its path toward fair value over time, although he believes that the recent sharp appreciation could slow, given that it has been boosted by a sharp unwinding of investor positions in the last few days that may not be repeated.