The International Monetary Fund (IMF) forecasts global central banks to start interest rate cuts in the latter half of the year, driven by declining inflation and resilient economic growth. The IMF predicts a 3.2% expansion in global growth for this year, slightly higher than previous estimates.

What Will Drive Rate Cuts in 2H24?

Inflation is expected to fall globally, with headline inflation projected to decline to 5.9% this year and 4.5% next year. This decline is attributed to decreasing core inflation, aided by elevated interest rates, weakening job markets, and relief from higher energy prices. However, the forecast may change, especially given the escalating conflict in the Middle East.

Global Rate Cut Time Tables May Vary

Central bank actions may vary across regions due to differences in inflation and growth trajectories. The European Central Bank (ECB) is likely to guide with a rate cut in June, while the timing for rate cuts in the United States remains uncertain due to stronger-than-expected inflation data and economic resilience. Notably, manufacturing production at U.S. factories rose solidly in March.

Upgrade in Growth Outlook; Challenges Remain

The IMF upgrades its growth outlook for the United States, projecting a 2.7% expansion this year, surpassing the Fed's estimate. However, growth is expected to slow to 1.9% next year due to gradual fiscal tightening and softening job market conditions. In contrast, the euro area's recovery is more gradual, hurt by high energy prices and weaker productivity growth.

The IMF suggests that artificial intelligence (AI) could drive investment and productivity gains in the near term. Advanced economies are poised to benefit more from AI. However, the IMF indicated that there are challenges to global growth, including a slowdown in productivity and GDP per person growth.

Aging populations and weakening business investment are also likely to lower workforce participation. Global trade has also weakened due to the emergence of new trade blocs following the Russia-Ukraine conflict.

ETFs to Win

Against this backdrop, below we highlight a few global ETFs that could gain higher in the second half of this year due to the return of risk-on trade activities. These ETFs have a P/E less than 25X. Notably, the S&P 500 has a P/E of 23.17X.

SPDR Portfolio S&P 500 ETF (SPLG Quick QuoteSPLG - Free Report) – Up 6.0% YTD

The underlying S&P 500 Index is designed to measure the performance of the large-capitalization segment of the U.S. equity market. The fund charges 2 bps in fees and yields 1.39% annually.

SPDR Portfolio S&P 1500 Composite Stock Market ETF (SPTM Quick QuoteSPTM - Free Report) – Up 6.0% YTD

The underlying S&P Composite 1500 Index is designed to measure the performance of the broad market segment of the U.S. equity market. The fund charges 3 bps in fees and yields 1.39% annually.

SPDR MSCI USA StrategicFactors ETF (QUS Quick QuoteQUS - Free Report) – Up 5.8% YTD

The underlying MSCI USA Factor Mix A-Series Index measures the equity market performance of large and mid-cap companies across the U.S. equity market. It aims to represent the performance of a combination of three factors: value, quality, and low volatility. The fund charges 15 bps and yields 1.49% annually.

iShares Global 100 ETF (IOO Quick QuoteIOO - Free Report) – Up 8.7% YTD

The underlying S&P Global 100 Index is designed to measure the performance of 100 large-capitalization global companies. The fund charges 41 bps and yields 1.37% annually.

First Trust International Equity Opportunities ETF (FPXI Quick QuoteFPXI - Free Report) – Up 6.8% YTD

The underlying IPOX International Index is a rules-based market-cap weighted index that measures the performance of the 50 largest and typically most liquid companies that are domiciled outside the U.S. within the IPOX Global Composite Index. The fund charges 70 bps and yields 0.66% annually.