KKR: Glass Half Full - Outlook for 2024
"We think earnings for the cycle already bottomed in 2Q23"
The KKR Outlook report, titled "Glass Half Full," presents an analysis of the global economic and investment landscape for 2024. The authors include Henry H. McVey, Head of Global Macro & Asset Allocation and CIO of KKR Balance Sheet, along with a team of experts comprising David McNellis, Frances Lim, Aidan Corcoran, Paula Campbell Roberts, and several others.
KKR, the organization behind this report, is a global investment firm that offers alternative asset management as well as capital markets and insurance solutions.
End of Equity Bear Market:
“We still think that the bear market in Equities actually ended in October 2022, and while there are plenty of considerations, returns tend to be above average after a 25% decline in the S&P 500.”
Central banks' large balance sheets act as buffers in stressful times.
Despite negative money supply growth globally, significant funds remain in the system.
Market underestimates this bullish scenario, supporting asset prices.
Earnings and Economic Cycle:
Earnings likely hit their lowest in the second quarter of 2023.
This is despite expectations of slower GDP growth in 2024.
Evidence suggests earnings per share (EPS) can rise even as GDP growth slows.
The KKR Cycle Indicator predicts a shift from contraction to early recovery, albeit with challenges.
Credit and Equity Markets:
“Outside of government bonds, new issuance supply remains near record lows. As a result, the technical bid for parts of Credit and Equities remains compelling.”
Consumers have extended their debt terms, particularly in mortgages.
Private Credit emerges as a feasible option for corporate borrowers.
Major corporate debt maturities shifted to 2025-2026, with near-term debt being of higher grade.
Central Bank Policies:
Expectation that central banks are nearing the end of tightening measures.
Bond prices believed to have reached their lowest for the near term.
Disinflation in 2024 could further support this view, though bonds may not rally as much as in previous cycles.
Investment Strategy and Themes:
Adopting a 'glass half full' approach in investment strategies, making thematic tilts accordingly
Geopolitical and economic challenges present unique investment opportunities.
“Though not exhaustive, Exhibit 1 identifies some of the areas where we are finding significant and compelling opportunities that require billions of dollars of capital investment to overcome new macroeconomic and geopolitical headwinds that were not persistent during the prior decade.”
