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 stabilisation ahead of the next US labour 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 labour market, Strobaek believes that the US economy and consumers are in relatively healthy shape, and sees limited recession risks.

The recent correction in tech stocks has been centred on semiconductors, the part of the market which was most overbought, or where prices had previously moved up fastest, Strobaek noted. 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 stabilise over the coming weeks.

Nevertheless, Strobaek emphasised 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 expects volatility to persist in the coming months.

Wealth managers are trying to figure out asset allocation strategy - and tactics - after US data and other factors spooked the markets on Monday, causing equity indices around the world to slide. The change in market sentiment also comes as the US gears up for the autumn election season ahead of the November 5 poll, pitting Democrat and vice president Kamala Harris against Republican challenger and former president, Donald Trump. 

Asset allocation
In view of this, Strobaek is keeping equities at strategic asset allocation levels for now. He thinks high dividend-paying stocks, including those in the energy sector, and attractively valued regions will outperform. Among his most preferred regions, he favours 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 expects the rethink longevity theme, focused on population ageing, will outperform. He 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 thinks the Japanese yen will continue its path towards 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.