August 2024 Market Outlook Summary

U.S. ECONOMY

The U.S. economy is likely to conclude the year with cumulative gross domestic product growth of about 2%, which we would view as a favorable environment for stocks and bonds. We see this growth potentially accelerating to approximately 2.5% in CY 2025 based on lower rates of inflation, Federal Reserve rate cuts, and rising corporate earnings growth. We believe inflation will continue to decline, with consumer price index and personal consumption expenditures core measures averaging out on a combined basis to about 2.7% to conclude this year and 2.4% in CY 2025.

FIXED INCOME

We believe the Federal Reserve is likely to implement three quarter-point rate cuts between now and year-end, taking the federal funds target range down to 4.50%–4.75% to conclude 2024. We also see the Fed further reducing rates thereafter and potentially finishing CY 2025 with a fed funds target range of 3.50%–3.75%. We expect the yield curve to incrementally flatten to a less inverted slope by year-end 2024 before normalizing back to an upward slope in 2025, based in large part on the 10-year Treasury bond yield concluding this year at about 3.75% and maintaining that level to finish CY 2025. Against this backdrop, we view intermediate-term, investment-grade bonds as providing a strong risk-reward profile for bond investors.

U.S. STOCKS

It is our judgment that the equity markets can achieve annualized double-digit total returns over the next two years. Our year-end 2024 price target on the S&P 500® is 5,800 with prospects to reach 6,300 by the conclusion of 2025. Key catalysts for stocks over this time include Fed rate cuts, declining inflation, and, most importantly, rising corporate earnings growth. We continue to prefer growth stocks over value through about mid-year 2025. However, after that time frame, a case can begin to be made for value stocks over the longer term.

INTERNATIONAL STOCKS

International stocks could be positioned for some degree of catch-up versus their U.S. counterparts as valuation measures have hit historically wide differentials. Against this backdrop, we see potential catalysts for international developed stocks as including a sharper decline of inflation in the eurozone combined with corresponding European Central Bank rate cuts and an improving market environment in Japan.

WILD CARD – U.S. ELECTIONS

We believe markets will likely respond most favorably to election outcomes resulting in split party leadership across the White House and Congress. Post the elections, should Vice President Kamala Harris be victorious, market focus could quickly center on future tax legislation as various components within the Tax Cuts and Jobs Act of 2017 are set to expire by year-end 2025. Should former President Donald Trump prevail, much attention will likely surround how far his administration might further expand tariffs imposed on China and additional countries.

2024 AND 2025 YEAR-END FORECASTS

Investments are subject to market risk, including the loss of principal. Asset classes or investment strategies described may not be appropriate for all investors.

Past performance does not guarantee future results. Indexes are unmanaged and an investor cannot invest directly in an index. 

Equities are subject to market risk meaning that stock prices in general may decline over short or extended periods of time.

Fixed income investing is subject to credit rate risk, interest rate risk, and inflation risk. Credit risk is the risk that the issuer of a bond won’t meet their payments. Inflation risk is the risk that inflation could outpace a bond’s interest income. Interest rate risk is the risk that fluctuations in interest rates will affect the price of a bond. Investing in floating rate loans may be subject to greater volatility and increased risks.

Growth stocks typically are particularly sensitive to market movements and may involve larger price swings because their market prices tend to reflect future expectations. Growth stocks as a group may be out of favor and underperform the overall equity market for a long period of time, for example, while the market favors “value” stocks. Value investing carries the risk that the market will not recognize a security’s intrinsic value for a long time or that an undervalued stock is actually appropriately priced. 

Investments in global/international markets involve risks not associated with U.S. markets, such as currency fluctuations, adverse social and political developments, and the relatively small size and lesser liquidity of some markets. These risks may be greater in emerging markets.

The information included in this document should not be construed as investment advice or a recommendation for the purchase or sale of any security. This material contains general information only on investment matters; it should not be considered as a comprehensive statement on any matter and should not be relied upon as such. The information does not take into account any investor’s investment objectives, particular needs, or financial situation. The value of any investment may fluctuate. This information has been developed by Transamerica Asset Management, Inc. and may incorporate third-party data, text, images, and other content to be deemed reliable.

Comments and general market-related projections are based on information available at the time of writing and believed to be accurate; are for informational purposes only, are not intended as individual or specific advice, may not represent the opinions of the entire firm, and may not be relied upon for future investing. Investors are advised to consult with their investment professional about their specific financial needs and goals before making any investment decisions.

The 10-Year U.S. Treasury bond is a U.S. Treasury debt obligation that has a maturity of 10 years.

S&P 500® Index: An unmanaged index of 500 common stocks primarily traded on the New York Stock Exchange, weighted by market capitalization.

Transamerica Asset Management, Inc. (TAM) is an SEC-registered investment adviser that provides asset management, fund administration, and shareholder services for institutional and retail clients. The funds advised and sponsored by TAM include Transamerica Funds and Transamerica Series Trust. Transamerica Funds and Transamerica Series Trust are distributed by Transamerica Capital, Inc. (TCI), member FINRA. TAM is an indirect wholly owned subsidiary of Aegon Ltd., an international life insurance, pension, and asset management company.