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Q2 2024 Capital Markets Perspective 


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The factors that have the potential to drive performance during Q2 and beyond.

Podcast transcript

Coming up, we look back at the first quarter of 2024 and look ahead to the second quarter and beyond.


From Thrivent Asset Management, welcome to Advisor’s Market360™, a podcast for you, the driven financial advisor. As is often discussed, the two key factors driving the economy and investment decisions are inflation and the U.S. Federal Reserve’s, or Fed’s, reaction to it. Not surprisingly, those factors were still key in the first quarter of 2024, and we anticipate they will be drivers throughout the remainder of the year. We are pleased to have two Thrivent experts join us to share their insights on inflation, the Fed, equities and fixed income. First, we have Steve Lowe, Chief Investment Strategist. We are also welcoming Kent White, Head of Fixed Income.

If we had sum to up the markets so far in 2024 in one word, it would be…resiliency. Let’s hear more about that word from Lowe:

(Lowe) “Yeah, for me, the key theme was resiliency, for the consumer and for the economy as a whole. You know, consensus had called for a recession; that hasn't happened. And now consensus has swung around to more of a soft landing overall for the economy. So, the economy appears solid.”

As inflation plays a big role in the economy, we wanted to get Lowe’s take on it during the first quarter.

(Lowe) “Yeah, inflation is everything. Inflation is driving the Fed. And the Fed in turn drives the economy. The economy has outperformed expectations, as we said, but too strong of an economy has a downside right now because, if it gets too strong, it's going to put upward pressure on inflation. The good news is the inflation rate has fallen, but that last mile toward the Fed's 2% goal is proving to be really hard, and particularly with what the market actually calls “sticky inflation” and especially in the service part of the economy.”

So where does Lowe think the Fed is heading with rates?

(Lowe) “I do think the Fed will keep rates higher for longer and just kind of cutting very slowly and measured to make sure that inflation is defeated.”

White weighs in on Treasury Rates during the first quarter.

(White) “The market and many economists ended the year expecting the Fed to begin cutting rates as early as the March Fed meeting and it priced in at least five rate cuts during 2024. Then we had a series of stronger than expected labor and inflation reports which sent Treasury yields at least 40 basis points higher across the curve. And, as a result of these and other economic reports that we've seen recently, the market is now only pricing in two or three rate cuts and starting at—in June—at the June meeting at the earliest. Treasury yields have also remained quite volatile as the market waits for clear direction from the Fed on the potential timing of these cuts and how long the rate cutting cycle might be.”

Because interest rates impact the credit markets, we asked White to share his thoughts on this part of the market…

(White) “Yeah, actually, credit is off to a very strong start to the year, the same as equities. As the market became much more comfortable with the soft- or no-landing scenarios, we saw credit spreads approach post-pandemic tights during the first quarter. So, we've seen this occur in almost every fixed income sector.”

But even with tight credit spreads, yields remained attractive to many investors in the first quarter. White explains:

(White) “At today's levels, we're still, you know, at the highest level since 2007 for the Treasury yield, and about the same for investment-grade credit spreads and high-yield spreads too—or high-yield yields. But yeah, that's—it’s been driven by the demand for yield and duration, and they’re more focused on yield and less so on credit spreads.”

If the theme for the first quarter of 2024 was resiliency, what themes will emerge during the second quarter and beyond. Let’s find out…

(Music transition)

As we head into spring, it’s looking increasingly likely that we will have a soft landing rather than a recession. We want to know Lowe’s thoughts on why he thinks a soft-landing is in the cards.

(Lowe) “Well, the consumer is always—continues to be the engine for the U.S. economy. You know, the labor market is slowing but remains still relatively strong. So, as long as the consumer has a job, they have income. And if they have income, they spend. And the U.S. economy is driven by consumer spending.

“The other thing that is positive in the economy I think is sort of a strong investment cycle. You can thank artificial intelligence, A.I., there's a lot of investment there and there's still some on-shoring of, you know, factories back to the U.S. because of some of the supply chain issues that surfaced in the pandemic.”

While a soft-landing seems likely, there are still potential problems for the economy. Lowe explains his thinking:

(Lowe) “Yeah, I look at it as sort of like crosscurrents. I mean, the economy's really good, but there's always positives and negatives to it. So, retail sales more recently have been very uneven. You know, some people are dipping into savings, which you can do for a while, but you can't do over a long time. Delinquencies on credit are starting to rise. You can see that on credit cards, car loans and mortgages. And that's really more in kind of lower to middle income segments. But they are rising; it’s a little concerning.

“You know, as always, upper income are still spending, but there are segments that are struggling financially. Manufacturing remains soft and that's a global phenomenon. But service sectors are still doing well. To me, the main concern is that inflation stays sticky and too high for the Fed, and the Fed has to keep rates higher for longer.”

Lowe also mentioned the nonlinear job market as a concern. He's keeping an eye on companies conducting layoffs, which may indirectly leave consumers unable to support other companies, potentially leading to more layoffs. 

(Music transition)

So far, our focus has been on the U.S. economy, but we also wanted to get Lowe’s take on the global economy.

(Lowe) “Well, the U.S. economy has been growing above expectations, really outperforming globally. You know, in contrast, the global economy is decelerating and, in particular, China and Europe have both been underperforming with weak growth. And that matters because they’re key trading economies for global trade, and they are the second and third largest economies in the world—which one is which depends on how you measure it. But that's a headwind—you know, when they slow—for the global economy and for global trade, and especially for U.S. multinational companies, global companies like—you can think about Apple in particular, as had seen sales tail off in China for a number of issues. So, it can be a headwind for the U.S. market, too.”

We asked White about what he sees for the emerging markets or EM:

(White) “On the emerging markets side, most economies ended 2023 on a fairly strong note, and outlook should remain fairly supportive in 2024. We're seeing really resilient growth across much of EM and if the Fed begins to cut rates, that will be an additional tailwind for these country’s economies.”

The subject of Fed rates continues to come up, so we wanted to get Lowe’s thoughts on what is likely to happen going forward.

(Lowe) “Yeah, going forward, I think sticky inflation means, you know, what the market has been calling—and media—"higher for longer,” meaning that the Fed will keep rates at a high level for a period of time and be very slow to cut them. You know, I expect them to kind of gradually lower rates just to ensure that inflation doesn't reignite.

“So, that translates into, you know, as Kent mentioned, two or three quarter-point rate cuts this year. And then, sort of that pace unless the economy slows materially. And if there's a recession, then they're going to cut very, very rapidly.”

(Music transition)

Let’s now turn our attention to equities. As you are probably aware, equities have gotten off to a strong start for this year, but it's definitely still dominated by the mega-cap tech names. We asked Lowe to offer his insights about equities.

(Lowe) “I mean, equities jumped right out of the gate to start the year with strong performance, but it's been like, as you mentioned, really narrow in breadth and unbalanced. You know, most of the returns have come from a handful of names, you know, the mega-cap—the so-called Magnificent Seven, and the other 493 members of the S&P 500 have lagged. And small caps have lagged, too.”

Even though White is on the fixed income side, he keeps a keen eye on corporate earnings because they are very important to the credit sector. We asked for his take on earnings and fundamentals:

(White) “Earnings definitely matter to credit and we expect them to be—continue to be supportive in 2024. The market is currently forecasting earnings growth of about 11% in 2024, which is better than last year's 3%. And credit fundamentals generally remain at very healthy levels. They’ve deteriorated a little bit over the last few quarters, and though declining, we're still seeing near-record margins at the investment-grade company universe, and leveraged metrics are not too worrisome at this point. However, one thing that we're keeping an eye on is, as company CEOs become more optimistic about the economy, we're already seeing a pickup in M&A and we're likely to see that continue through 2024. They might begin share repurchases in a more aggressive fashion. So, we're keeping a closer eye on company balance sheets this year as well.”

We also wanted to know what worries him:

(White) “Valuations on the credit side are probably our greatest concern. And, you know, there's still—there is some recession risk out there, or maybe it’ll be a soft recession if we go that route, but—or even just a softer economy, and that will have an impact on earnings. And none of that is really priced in at levels, whether it's the equity market or the fixed income markets.”

Looking a bit further out, we wanted to know what our experts anticipate for equities for the rest of the year. Here’s Lowe:

(Lowe) “Yeah, I think near-term, you know, we've come a long way, you know, between last year and beginning of this year. Expect a choppy environment with some consolidation. But, you know, expect the year to end better. You know, earnings should remain solid. But—and earnings are really important because you think about what drives equities over the long run, it's purely earnings. And they map very, very well together because that's essentially what you’re buying when you buy a stock.

“You know, one risk, I think, is margins. In particular, one thing that benefited company margins was inflation, because it was really easy to raise prices when inflation was higher, and now it's getting harder. So, lower inflation is actually a risk to company margins.”

White weighs in…

(White) “I think growth and quality have worked well last year and this year and expect that to continue to work for now. You know, so this includes large-cap tech because these are, you know, growth and quality companies have earnings and have strong balance sheets and cash flows. Momentum, which is a factor, has been really strong so far this year, basically meaning that what's working continues to work and, you know, stocks that are going up, keep rising. That trend looks very, very extended. So, I think there's some risk of reversal there. And maybe some of the leaders start lagging a bit for a while.”

While the mega-caps have dominated the market, there are laggards like small caps and value stocks. We asked Lowe if there was opportunity with these equities.

(Lowe) “Yeah, there is opportunity. They do look interesting. You know, valuations are definitely more attractive than some of the richer parts or growth parts of the market. But, I think, in order for the market to broaden beyond the mega caps into small caps and value, you need a few things: you need the Fed to actually start cutting rates, and I think you need a sustainably strong—but not too strong—of an economy, and one that’s sustainably, you know, growing. And expect that, you know, maybe later this year, because both those segments are cyclical, so they need a strong economy to perform well.”

We also wanted to get Lowe’s take on international stocks. Specifically, if he still prefers U.S. over international.

(Lowe) “Yes. It's important to note international is much more so about industry than, really, regions in a lot of ways. And the reason we prefer the U.S. kind of over the long run is it has a strong, innovative tech sector, you know, and that's where the growth is highest. And the European market is actually a lot more cyclical—so, more financials, more industrials. And China is, too. It's more tied to manufacturing and trade. And both are weak now. Over the long run, you know, we still have a secular bias to the U.S. because of its, you know, industry composition and better growth dynamics.”

(Music transition)

Now we are going to turn our attention to the fixed income side. First, we wanted to get White’s take on the Fed:

(White) “So, the focus is going to be on the Fed, and our view remains that the Fed is unlikely to cut rates until the June or July meeting at the earliest and will likely only cut two or three times in 2024. And we would expect them to continue to cut rates into 2025. But that whole rate cutting cycle has kind of shifted a little bit later than, as we mentioned earlier, later in the year. So, the next few months will be critical to this view, though. We continue to expect inflation to resume its downward trajectory and the economy to soften a bit, just enough for the Fed to make some adjustments to their policy rate.”

We also wanted to hear his thoughts on what he expects from yields:

(White) “We would expect terminal yields to decline and front-end yields to decline even more than the long end of the curve. There's a number of things going on there. Partially, we've got a lot of Treasury supply coming at the back end, and back in the third quarter of last year, we had a little bit of a hiccup with some of the Treasury auctions and the long-end rates really spiked. So, that risk isn't hasn't gone away. So, we're not—we'd prefer to be in the front end of the curve.”

Of course, we asked about potential risks that White is thinking about.

(White) “Inflation could remain sticky, as Stephen mentioned. Unemployment is still—it’s moved up a little bit, but it's still at very low levels, 3.9% at the last reading. And financial conditions have eased quite a bit with the equity market and, you know, banks loosening their lending standards a little bit. So, the Fed may be reluctant to begin cutting rates in this environment without clear progress on the inflation front.”

Next, we wanted to get White’s opinion on the credit side and what he sees there:

(White) “On the credit side, you know, we view all-in yields across fixed income as very attractive. That's been our view for a little bit here. As we mentioned earlier, too, you know, yields are still at very high levels relative to recent history. So, all-in yields are—we like. From a valuation perspective, however, credit spreads are really kind of near historical highs.

“So, there's been such a huge demand for yield that spreads have become very compressed in this environment. We're not overly concerned about a material spread widening event at this point, but there's really minimal upside. So, we like, as we said, all-in yields across fixed income and just—we just need to be a little bit more choosy about where we're at and what sectors we're in.”

(Music transition)

Any outlook on the economy has to factor in the risk of inflation as a wild card that throws off assumptions rather quickly. Here’s what Lowe is thinking about inflation:

(Lowe) “You know, inflation continues to be the key. You know, we do expect it to move lower, but it's going to be bumpy and uneven, and you're seeing that now. And inflation and growth will drive the Fed, which will drive markets.”

Lowe also addressed the concerns over inflation’s recent upticks over the past several months:

(Lowe) “Yeah, I think the market will become seriously worried if it happens for, you know, another two months or so. It's already on the cusp of getting worried about it. It should go down, but it's always at this stage a little bit, you know, uneven and you know, it's going to be hard to get it down to 2%.”

(Music transition)

To wrap up this episode we wanted to learn how our experts are positioning for the quarters ahead. Let’s start with Lowe and equities:

(Lowe) “We're modestly overweight equities versus our target or benchmarks. We're overweight the U.S., you know, [it] continues to outperform in growth and earnings. We’re close to neutral on small caps but we’re overweight mid caps. We really like mid caps, partly because we love our managers there, but also because there's very strong risk-adjusted returns. And, you know, today's mid-cap, as we say, you know, is tomorrow's large cap, potentially. You know, we're underweight international equities, that’s mostly on developed. We’re relatively close to neutral, a little under on emerging markets right now.”

Next, we got White’s positioning thoughts for fixed income.

(White) “Sure. So, I think fixed income, as I mentioned, we really like fixed income much more than we have in the past, just given our all-in yields. Currently, we're sitting about neutral duration, looking for an opportunity to really kind of get a little bit longer. We're positioned long on the front end, but overall, roughly neutral versus our peer group and benchmarks.

“And again, back to valuations. You know, we really—we don't find a lot of value there right now. So, we've gotten up in quality bias across most of our portfolios: higher quality investment grade, you know, I've got more Treasuries in some of our portfolios than we typically have—just, still capturing the yield, but trying to protect our downside as well.”

(Music up and under)

Once again, we would like to thank Steve Lowe and Kent White for their insights. More episodes of Advisor’s Market360™ are available at Email us at with your feedback, questions and topic suggestions for future episodes. And as always, you can learn more about us at and find other insights of interest to you, the driven financial advisor. Bye for now.

(Disclaimers under music)

All information and representations herein are as of March 20, 2024, unless otherwise noted.

Past performance is not necessarily indicative of future results.

This podcast refers to specific securities which Thrivent Mutual Funds may own. A complete listing of the holdings for each of the Thrivent Mutual Funds is available on

Actual investment decisions made by Thrivent Asset Management, LLC will not necessarily reflect the views expressed. This information should not be considered investment advice or a recommendation of any particular security, strategy or product. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance. 

Any indexes shown are unmanaged and do not reflect the typical costs of investing. Investors cannot invest directly in an index.

Thrivent Asset Management, a division of Thrivent, offers financial professionals a variety of investment products to help meet their clients’ needs. Thrivent Distributors, LLC is a member of FINRA and a subsidiary of Thrivent, the marketing name for Thrivent Financial for Lutherans.

Steve Lowe, CFA
Chief Investment Strategist
Kent White, CFA
Head of Fixed Income