Recently, I had the opportunity to attend the 2024 Milken Global Conference in Beverly Hills and speak on a panel with a few of my esteemed peers about future financial conditions and the overall health of the U.S. economy.

We discussed how investors can safeguard against systemic risks while capitalizing on opportunities in increasingly polarized economic cycles, the impact of central bank action on consumers and businesses, and the effect geopolitics might have on economic strength in the next decade. Here are my key takeaways from our discussion.

Despite downwardly revised rate cut expectations, U.S. markets remain exuberant

Federal Reserve (Fed) language is playing a large part in fluctuating market sentiment. Last October, markets embraced Chairman Jerome Powell’s (premature) inflation victory dance, which inevitably loosened financial conditions, and is likely one of the reasons we saw sustained economic strength and associated upside inflation surprises in Q1. Again, during the April FOMC meeting, Chair Powell was clearly quite dovish and pushed back against fears of rate hikes, which re-incensed a bit of happiness into the market. Investors are clearly eager to cling on to even the smallest sign that rate cuts are coming.

Additionally, investors who are looking across the markets and the U.S. economy are seeing fundamentals— growth and earnings numbers— that are quite strong at the moment. This makes it easier to digest Fed language indicating that they might not get the additional tailwind of rate cuts as soon as anticipated this year. Ultimately, with such a strong U.S. economy, it makes sense that markets are doing well despite delayed rate cuts, and investors should be able to eke out further positive gains from here.

Geopolitics, such as re-shoring and elections, are too pushing inflation up

From a geopolitical standpoint, 2024 is the year of elections. Of course, there is a high-stakes presidential election happening in the U.S., but important elections are taking place worldwide. Historically, geopolitical events haven’t had sustained impacts on the market beyond a week or two. However, events that impact supply chains and oil prices are the clear exceptions to this rule, with ramifications that feed through to inflation—and what we're seeing today is the antagonism between countries is being targeted toward supply chains. That is a direct, economic, route for countries to battle with each other. As investors look out over the next 5-10 years, which is more likely, that geopolitical pressures are going to increase or fade away? Assuming that they will continue to play a part on the global stage, then that's going to continue to put upward pressure on inflation.

Although lower-income households and small businesses are bearing the brunt of higher-for-longer rates, the U.S. economy is likely to remain strong

One of the things that is emerging in the economy is a bifurcation between high-income & low-income households. As excess savings from the pandemic dwindle, lower-income households are starting to feel the impact of the Fed’s rate-hiking campaign. However, it is important to note that lower-income households aren’t really struggling anywhere close to what we observed before the Global Financial Crisis. Additionally, what continues to drive the U.S. economy are high-income households, who haven’t had to rely on excess savings and were able to refinance their debt at historically low levels before the Fed’s rate hiking cycle and are now benefitting from growth in passive income. There is a similar bifurcation emerging between large and small businesses, with large businesses more resilient to higher interest rates. So, there will be pockets of weakness, which are starting to show through in the lower-income household and small business space, but it is not yet enough to create a major warning sign for the economy.

In addition, provided the labor market is strong, consumers are going to be strong. Spending can generally be maintained provided a regular paycheck is being received. So, while there may be a few cracks emerging in consumer spending, continued robust labor demand should keep mortgage defaults and consumer credit card defaults from rising sharply. This is the reason why the Fed is so focused on the labor market currently It is unlikely to delay rate cuts for too long because it wants to maintain strong labor demand, ensure job losses do not spike and prevent significant consumer weakness.

Visit our 2024 Milken Global Conference landing page for session replays and for additional insights from myself and my colleagues.


For Public Distribution in the U.S. For Institutional, Professional, Qualified and/or Wholesale Investor Use Only in other Permitted Jurisdictions as defined by local laws and regulations.

Risk Considerations
Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results and should not be relied upon to make an investment decision. Inflation and other economic cycles and conditions are difficult to predict and there Is no guarantee that any inflation mitigation strategy will be successful.

Important information
This material covers general information only and does not take account of any investor’s investment objectives or financial situation and should not be construed as specific investment advice, a recommendation, or be relied on in any way as a guarantee, promise, forecast or prediction of future events regarding an investment or the markets in general. The opinions and predictions expressed are subject to change without prior notice. The information presented has been derived from sources believed to be accurate; however, we do not independently verify or guarantee its accuracy or validity. Any reference to a specific investment or security does not constitute a recommendation to buy, sell, or hold such investment or security, nor an indication that the investment manager or its affiliates has recommended a specific security for any client account.

All figures shown in this document are in U.S. dollars unless otherwise noted.

This material may contain ‘forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

This material is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.

This document is issued in:

  • The United States by Principal Global Investors, LLC, which is regulated by the U.S. Securities and Exchange Commission.
  • Europe by Principal Global Investors (Ireland) Limited, 70 Sir John Rogerson’s Quay, Dublin 2, D02 R296, Ireland. Principal Global Investors (Ireland) Limited is regulated by the Central Bank of Ireland. Clients that do not directly contract with Principal Global Investors (Europe) Limited (“PGIE”) or Principal Global Investors (Ireland) Limited (“PGII”) will not benefit from the protections offered by the rules and regulations of the Financial Conduct Authority or the Central Bank of Ireland, including those enacted under MiFID II. Further, where clients do contract with PGIE or PGII, PGIE or PGII may delegate management authority to affiliates that are not authorised and regulated within Europe and in any such case, the client may not benefit from all protections offered by the rules and regulations of the Financial Conduct Authority, or the Central Bank of Ireland. In Europe, this document is directed exclusively at Professional Clients and Eligible Counterparties and should not be relied upon by Retail Clients (all as defined by the MiFID).
  • United Kingdom by Principal Global Investors (Europe) Limited, Level 1, 1 Wood Street, London, EC2V 7 JB, registered in England, No. 03819986, which is authorized and regulated by the Financial Conduct Authority (“FCA”).
  • United Arab Emirates by Principal Global Investors LLC, a branch registered in the Dubai International Financial Centre and authorized by the Dubai Financial Services Authority as a representative office and is delivered on an individual basis to the recipient and should not be passed on or otherwise distributed by the recipient to any other person or organisation.
  • Singapore by Principal Global Investors (Singapore) Limited (ACRA Reg. No. 199603735H), which is regulated by the Monetary Authority of Singapore and is directed exclusively at institutional investors as defined by the Securities and Futures Act 2001. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.
  • Australia by Principal Global Investors (Australia) Limited (ABN 45 102 488 068, AFS Licence No. 225385), which is regulated by the Australian Securities and Investments Commission and is only directed at wholesale clients as defined under Corporations Act 2001.
  • This document is marketing material and is issued in Switzerland by Principal Global Investors (Switzerland) GmbH.
  • Hong Kong SAR (China) by Principal Asset Management Company (Asia) Limited, which is regulated by the Securities and Futures Commission. This document has not been reviewed by the Securities and Futures Commission.
  • Other APAC Countries/Jurisdictions, this material is issued for institutional investors only (or professional/sophisticated/qualified investors, as such term may apply in local jurisdictions) and is delivered on an individual basis to the recipient and should not be passed on, used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.

Principal Funds are distributed by Principal Funds Distributor, Inc.

© 2024 Principal Financial Services, Inc. Principal®, Principal Financial Group®, Principal Asset Management, and Principal and the logomark design are registered trademarks and service marks of Principal Financial Services, Inc., a Principal Financial Group company, in various countries around the world and may be used only with the permission of Principal Financial Services, Inc. Principal Asset Management is a trade name of Principal Global Investors, LLC. Principal Fixed Income is an investment team within Principal Global Investors.


Related Insights

About the author