Macro views

CIO insights: Navigating markets and opportunities

Is the global economy vulnerable to additional shocks? What does a slow-down in economic growth mean for equity and fixed income markets? What should investors consider as they look to mitigate risk and re-balance their portfolios?

We sat down with key leaders across Principal Asset Management at the start of the year to answer these questions. Watch or read their unique perspectives on opportunities and potential performance drivers for asset allocation, equity, and fixed income markets going forward.

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Asset allocation Equities Fixed income

Asset allocation

Todd Jablonski on asset allocation market expectations

Todd Jablonski, CFA

Todd Jablonski, CFA

Chief Investment Officer & Global Head of Multi-Asset and Quantitative Investments

Key takeaways

  • The pace of Federal Reserve easing, valuations, and earnings delivery will move investors in a new direction.
  • If growth continues and we avoid a recession, we believe sales growth, profitability, and earnings will point to stock market winners.
  • Consider rebalancing to free up capital to re-deploy—seek equities with valuation opportunities in mid- and small-caps, credit, with investment grade preferred, as well as lower volatility diversifiers in asset classes without a lot of risk, such as hedge funds and short-term credit.
  • The durable nature of the 60/40 portfolio keeps working. Look at real assets, income assets, stability assets later in the investment horizon as a potential complement to 60/40 for additional diversification.
  • Prepare portfolios for an outcome that allows for participation in the upside of positive economic events while also protecting against risk in an uncertain environment.

Equities

George Maris on equity market expectations

George Maris, CFA

George Maris, CFA

Chief Investment Officer, Global Head of Equities

Key takeaways

  • With a lot of concentration in a few names in 2023, many stocks were overlooked, creating opportunities across the equity landscape.
  • There’s great innovation happening everywhere, which is one of the many reasons investors should approach investing from a global perspective.
  • The landscape is wide open for true active management in 2024 – there are opportunities in both emerging and developed markets.
  • Consider companies that can generate growth – either by satisfying a supply shortage or because of significant pricing power. There’s incredible opportunity to invest in new and legacy companies that are changing how the world works.
  • Invest with visibility into what’s going to happen in the future, instead of focusing on the 24/7 short-term news cycle.

Fixed income

Michael Goosay on fixed income market expectations

Michael Goosay

Michael Goosay

Chief Investment Officer, Global Fixed Income

Key takeaways

  • As 2024 gets into full swing, we anticipate fixed income will be an attractive asset class as the economic tightening cycle turns into a pause in and an easing of policy, which has historically been a good time to start buying fixed income.
  • Unlike the Federal Reserve, many global central banks have less opportunity to ease policy in 2024 and beyond, with risks yet to be felt in some Asian economies.
  • We expect larger and more aggressive rate cuts to start in the third quarter of 2024, aimed at having a big impact on the economy in a short period of time.
  • While timing remains a challenge, it’s evident that extending duration when central banks pause or move toward an easing cycle is an advantageous first move, followed by buying assets with a bit more associated risk once a slowdown or recession hits. Consider longer-dated, higher-quality instruments like agency mortgages and higher quality investment grade corporates, as well as municipal bonds. Be more cautious and consider active management and differentiated strategies for areas of fixed income that are sensitive to slowdowns, like emerging market debt or high yield.
  • Three main characteristics make fixed income an attractive asset class and essential part of any investor’s portfolio in 2024 and beyond—income, total return opportunity, and diversification.
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