Market sentiment now indicates that rate cuts will not occur until the third quarter of 2024. Despite signs of strength, the direction of the economy and the likelihood of a recession remain uncertain. Relations between the U.S. and China are expected to remain strained regardless of the U.S. election outcome.
2024 overview
In the first half of the year, core inflation remained 
stubbornly above the 2% target in the U.S., while real GDP increased at an annual rate of 2.8% in the second quarter. Consumer spending, as measured by the Personal Consumption Expenditures Price (PCE) Index, continued to show strength, increasing by 2.6% in the second quarter.1
Markets continue to show enthusiasm for Artificial Intelligence in 2024. However, the rally has narrowed as three stocks from the “Magnificent Seven”, Apple, Alphabet and Tesla, have hit some headwinds in the first half of the year.
Finally, we continue to monitor the dramatic run-up to the U.S. presidential election, where Vice-President Kamala Harris will replace President Joe Biden at the top of the ticket. President Biden’s endorsement of Ms. Harris came almost exactly one week after the attempted assassination of Donald Trump, the Republican candidate, at a campaign rally in Pennsylvania.
Key themes we will continue to monitor
Inflation
With inflation remaining above the 2% target and economic data largely mixed, we continue to expect that the U.S. economy will be in a higher for longer interest rate environment. Market participants have pushed rate cut expectations to the third quarter of 2024. That is in contrast to the sentiment coming into the year, where investors were anticipating five cuts beginning in March.2
Recession?
Economic uncertainty lingers as some signals point to a looming recession, such as the Leading Economic Index. The index, which provides a sense of where the economy is heading in the near term, has been increasing in recent months yet remains firmly in negative territory.3
Source: Bloomberg based on The Conference Board Leading Economic Index, as of May 31, 2024.
Other indicators, such as the Initial Claims data, which measures new unemployment claims filed in the U.S., are more elevated as of late.4 We will continue to monitor this, however we feel that there is no cause for concern just yet.
Population growth
We continue to monitor U.S. population growth and the implications on the overall economy. A recent study published by the Organization for Economic Co-operation and Development (OECD) states that the ratio of old age to working age members of the population in the U.S. will be well below the OECD averages in 2050 and 2080. This contrasts most other developed economies which are projecting declines in their working age populations.5
Government policy
We will continue to monitor the potential fallout of U.S. tariffs on Chinese goods, key among these being electric vehicles, where the tariffs rose from 25% to 100% and semiconductors, which doubled to 50%. China warned that the tariffs, which go into effect on August 1, 2024, will affect the broader relationship between the two countries sparking fears of a wider trade war. With the U.S. presidential elections taking place in November, the outcome is expected to have little impact on U.S.-China relations. Policies under Kamala Harris are largely expected to be a continuation of President Biden’s, which have not been soft on China. Donald Trump is also expected to take a more aggressive stance on trade with the country.
Download the full Empire Life 2024 Semi-annual Market Outlook (PDF).
1 Bureau of Economic Analysis, bea.gov/sites/default/files/2024-05/gdp1q24-2nd.pdf, May 30, 2024.
2 “4 Charts on Plunging Expectations for Fed Rate Cuts”, Morningstar Market Insights, morningstar.ca/ca/news/248118/4-charts-on-plunging-expectations-for-fed-rate-cuts.aspx, April 10, 2024.
3 “US Leading Economic Index ® (LEI) Continued to Fall in April”, The Conference Board, conference-board.org/topics/us-leadingindicators, June 21, 2024.
4 Unemployment Insurance Weekly Claims, U.S. department of Labor, June 13, 2024.
5 OECD and G20 Indicators, oecd-ilibrary.org/demographicold-age-to-working-age-ratio_d9aef235-en.pdf?itemId=%2Fcontent%2Fcomponent%2Fd9aef235-en&mimeType=pdf, June 2024.
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September 2024