Harbor Consensus Highlights – Q2 2024

At the heart of Harbor’s DNA is our focus on hand-selecting and vetting investment teams with differentiated approaches. Each quarter, Harbor conducts the Harbor Consensus, a survey of our investment partners, in an effort to better understand trends and themes that permeate stylistic and asset class preferences and specialties.

A Level Set on Fed Action

Harbor’s second-quarter survey showed a shift in expectations amongst our investment partners, with the majority believing the Fed’s first rate cut will occur in the fourth quarter of 2024. Notably, 25 percent of respondents now think that first cut will come in 2025.

This represents a significant change from the survey results in the first quarter of 2024, where the majority of respondents believed the first rate cut would occur the following quarter (Q2 2024) and none of the respondents foresaw the first rate cut pushing out into 2025.

Source: Harbor Consensus Survey Q4 2023, Q1 2024 & Q2 2024.

To be sure, this shift accounts for the Fed’s commentary guiding towards this delay, but it also seems to suggest that our investment partners now believe the Fed is willing to be more patient than they had previously thought.

Subsequently, respondents also now hold their highest forward 12-month view on 10-year U.S. Treasury yields of 4.25 percent since the inception of the Harbor Consensus in the second quarter of 2020. In our view, this reflects a buy in from the group on the Fed’s “higher for longer” rhetoric.

Source: Harbor Consensus Survey Q2 2020 - Q2 2024.

Narrowing Expectations on U.S. Equity Performance

Simultaneously, Harbor’s affiliates showed bullishness on equities, anticipating that the S&P 500 will deliver high single-digit gains for the remainder of 2024, as shown in the following chart.

Source: Harbor Consensus Survey Q1 2024 & Q2 2024.

This compares with first-quarter results that included a wider dispersion of responses from our investment partners. Notably, only nine percent of respondents now expect double-digits gains for the S&P 500 for the remainder of 2024, compared to 21 percent in the first-quarter survey, while only 35 percent of the field believes that any result other than a +5 to +9 percent return is likely for the index for the rest of 2024.

Are Today’s Leaders Tomorrow’s Laggards?

According to Harbor’s investment partners – not necessarily. When posed with a question on whether there would be a mean reversion in small caps or commodities or continued outperformance from large caps and big tech companies, the range of responses proved to be rather balanced.

Source: Harbor Consensus Survey Q2 2024.

However, we did find it notable that roughly two-thirds of respondents expect that either small caps, commodities, or both will outperform. For an in-depth look at the small cap landscape in particular, Harbor President & CIO Kristof Gleich recently delved into the topic as part of a new series entitled Active Edge.

Thinking Outside the Box

Although common threads abounded in our Q2 2024 Harbor Consensus, managers provided their “out of consensus” calls for 2024. This serves as a reminder that the global investment landscape is a complex space with a multitude of considerations always at play.

Source: Harbor Consensus Survey Q2 2024.

Conclusions

All things considered, these survey responses suggest to us the majority of Harbor’s investment partners believe in a more concentrated set of possibilities for rate cuts and equity performance in 2024. However, the asset classes best positioned for relative, future success remains less clear. As always, we point to active management as the most attractive way to gain access to strategies that look to exploit market inefficiencies that may be overshadowed by these more macro-level concerns.

The Harbor Consensus

Rigorous manager selection has been central to Harbor’s mission since its founding four decades ago. We partner with managers that we view as best-in-class, and we have a great deal of respect for their investment views. To harness this wealth of knowledge and experience, Harbor’s investment team surveys our investment partners quarterly for their views on a variety of investment topics. Most questions are standard from quarter to quarter, allowing us to examine how the managers’ views evolve over time. We also include one or two special questions each quarter, to gauge our partners’ views on relevant topics of the day. The survey responses are gathered into the Harbor Consensus, which is one input into the mosaic of information that Harbor’s Multi-Asset Solutions Team uses to develop its own asset allocation views.

Important Information

The views expressed herein may not be reflective of current opinions, are subject to change without prior notice. This material is for informational and illustrative purposes only. This material does not constitute investment advice and should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or to adopt any investment strategy.

Investing entails risks and there can be no assurance that any investment will achieve profits or avoid incurring losses.

The S&P 500 Index, or Standard & Poor's 500 Index, is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. This index is unmanaged and does not reflect fees and expenses and is not available for direct investment.

A basis point is a standard measure for interest rates and other percentages in finance. One basis point equals 1/100th of 1%, or 0.01% (and.0001 in decimal form).

Beta compares a stock or portfolio's volatility or systematic risk to the market.

Polling: The above mentioned were Harbor created polls conducted as part of the Q2 2024 Harbor Consensus. Respondents consisted of subadvisors, affiliates with the group trust, and other investment groups that work with Harbor Capital who were invited to participate in the survey. There were a total of 24 participants. For the first rate cut expectations polling question (first chart), 24 participants responded. For the next 12-months 10-year Treasury Rate expectations polling question (second chart), 23 participants responded. For the peak S&P 500 Index polling question (third chart), 23 participants responded. For the mean reversion of continuation polling question (fourth chart), 24 participants responded.

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