Principal Asset Management just released their outlook on Trade Policy, Geopolitics, and Fiscal Position which shared some the key themes for investors to look out for

In its outlook, the firm said there is U.S economic moderation, but cyclical upturns elsewhere. U.S. growth is softening as lower-income households feel the bite of higher interest rates. Other developed markets are now enjoying cyclical upturns, yet the limited nature of their recoveries suggests that U.S. economic dominance still holds.

Global inflation tentatively resumes its last mile of deceleration. The inflation scare of 1Q24 is now waning, but a few more months of soft inflation data are required to validate that disinflation is proceeding as necessary. Without a sharp labor market slowdown, global inflation will unlikely reach central bank targets until late 2025, if not 2026.

Central bank cutting cycles are set to be slow and shallow. A first Fed rate cut could occur in September, provided inflation continues to decelerate and economic activity does not reaccelerate. Other central banks have started easing, but their next moves will fall back in line with the Fed's actions.

Equity markets can eke out positive gains, provided the economic backdrop remains solid. That same economic strength that has delayed Fed cuts should support a positive backdrop for corporate earnings, ensuring that the set-up for U.S. equities remains reasonably constructive. Yet the concentration of gains does pose a risk.

Elevated fixed income yields continue drawing investor interest. Macro resilience should ensure a gradual rise in defaults rather than a sudden spike, meaning credit spreads

On fixed income's resilience, Michael Goosay, Chief Investment Officer, Fixed Income said, "fixed income has handled the significant repricing in rate expectations well, helped by continued macro resilience and yields sitting near the top end of their range over the past two decades. Perhaps the main concern for the asset class is the narrowness of credit spreads. Sitting near the tight end of their long-term range, and confronting an economy that is no longer accelerating, spread narrowing is unlikely to provide a further tailwind to returns."

Addressing investor's concern on the U.S election in her latest Quick Take, Seema Shah, Chief Global Strategist shared, "Historically, avoiding market participation during election volatility has not been advantageous. Investors should thus remain focused on long-term fundamentals and stay invested, allowing election-related noise to pass."