Wealth Outlook 2024 - Slow then grow

130 Wealth Outlook 2024 | Regional outlook North America: an emerging set of new opportunities FIGURE 2 US stock market valuations 10 2023 2022 2021 2020 2019 FY1 PE 25 S&P 500 Mkt Weighted FY1 PE S&P 500 Equal Weighted FY1 PE S&P 600 FY1 PE S&P 400 FY1 PE 20 15 Source: FactSet as of November 15, 2023. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of future results. Real results may vary. Fixed income Today’s high rates are unlikely to last. The Fed’s long- term inflation goal is 2.0% and looking at the Treasury Inflation-Protected Securities (TIPS) yield, expected inflation is just 2.3%. Therefore, barring a complete policy reversal or lasting supply shock, investors may consider moving from cash to bonds and to build a durable, diverse fixed income portfolio to capture these unusual real yields. US fixed income markets experienced one of their worst performance periods ever in 2022–2023 as the Fed moved aggressively to arrest inflation. But after Fed rate hikes of 525 bps in 2022–2023, the market now expects the central bank to lower policy rates in 2024 by 75-100 bps. Long-term investors may benefit from a wide variety of US dollar (USD)-denominated fixed income offering high yields relative to the past 15 years ( FIGURE 3 ). And these yields may be supplemented by price appreciation if yields fall. Duration measures a bond or bond portfolio’s sensitivity to interest rates. In our tactical asset allocation, we’re running with a lower duration than our strategic benchmark, 5.5 years versus 6.2, with our largest exposure in US Treasury and investment grade (IG) corporate segments of the market. Currently, we see opportunities in 3- to 7-year IG issues and IG preferred securities. In high yield, where we are slightly underweight, BB-rated issues provide the most value, in our view.