Checking the CIO Pulse

Year-to-date, the equity market has continued to advance, expectations for up to six Federal Reserve (Fed) interest-rate cuts in 2024 have dwindled to less than two, global bond yields have risen, credit spreads have tightened, oil prices have surged, and the US dollar has defied consensus expectations by strengthening even further.

Considering these developments, we decided to use a recent gathering of 20 of our chief investment officers (CIOs) responsible for overseeing the firm’s spectrum of investment strategies—including equity, fixed income and alternative strategies—as an opportunity to check their collective investment pulse. In what follows, we summarize our survey of their perspectives on the global economy, monetary policy, corporate profits and market outcomes, highlighting how our most experienced risk-takers now view the 2024 investment landscape. We conclude with observations about where we at the Institute see investment opportunities and risk.

What will the Fed do?

We begin with Fed policy, arguably one of the most significant factors driving global bond markets and, by extension, of great importance for the performance of global equities.

Reflecting the market’s shift toward later and smaller rate cuts this year, our CIOs also now believe that the Fed will only ease modestly in 2024. Most respondents (53% of 16 individuals queried) foresee the fed funds rate between 4.50%–5% at the end of this year, consistent with two, perhaps at most three, quarter-point reductions. That is a sharp decline from market consensus expectations of roughly 150 basis points (bps) of Fed easing expected at the beginning of the year. The CIOs’ more cautious views on Fed easing reflect both better-than-expected US growth and stickier-than-expected US inflation as reported in the first quarter of 2024.

Notably, 88% of our leading investment professionals expect some Fed easing this year and none of them believes the Fed will smash consensus expectations with a hike. Therein lies, however, a potential risk for markets this year should US growth and inflation data continue to surprise to the upside.