We see three scenarios economically for the 2024 calendar year (2024CY).
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The first is a so-called soft landing (low economic growth).
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The second is for a mild recession position (with inflation brought more under control, but limited growth in the economy).
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The third scenario is a hard landing (a significant period of recession – negative growth).
Various commentators have promoted these as the scenarios for 2024 for the US. Many of them agree that for the rest of the global economic regions, similar options exist.
Most of these commentators are American business leaders: they all claim that the USA will be the ‘best-off’ economy. They also claim that the US will lead the world in the recovery phase. They claim it will recover more quickly than any of the other major economies (notably, China, Europe, and Japan).
The economic outlook indicates that a soft landing in the US is achievable. It also indicates that Fed rates will start to drop during 2024 (probably late in the second quarter). The consensus is that the likelihood of this happening, of between 75% and 80%. Inflation is expected to remain above the Fed target rate for some years out, though reducing toward that target. Their firm target rate is 2%.
We specifically acknowledge drawing on research and opinion published by the following research and funds management houses for this article. The publications by Morningstar, Vanguard, Invesco, Schroders, Lazard, Bloomberg TV, and Mercer have all been scrutinised. We are happy to share their published material with our clients should they wish to undertake further reading in these matters.
There appears little uniformity on projections as to markets outcomes in regards the traditional elements of the investor’s portfolio. Some popular speculation has included that Bonds/ Cash will continue to yield around the 4% to 5% mark. The expectation around equities is for the 6% to 7% mark. Consensus has it that a diversified 60/40 portfolio, will generate a little over 6% for 2024.
Headwinds and tailwinds –
There is consensus on the headwinds that continue to challenge economies and markets. They include the Ukraine and the Israeli-Hamas wars; geopolitical tensions (US-China; etc); and a significant election year in democratic countries. Some also cite extreme weather events; and confusion and misrepresentation of ESG characteristics will prevail for most of the year.
The big tailwind for the next year and beyond, is almost unilaterally agreed to be AI. Albeit so, it is generally agreed there is a long way to go before we should worry about technology replacing humans in the fields of communication. There is also considerable development to take place before students can rely on AI to produce their research documentation.
On a Quarter-by-Quarter outlook for 2024, we anticipate the following experiences from a Markets viewpoint. These will always be subject to any caveats as to anticipated outcomes for the year generally, of course.
The Outlook quarter by quarter
Quarter 1 (January to March):
we expect that the continuing strength of most economies, developed or emerging, should see interest rates fairly stable and yields on fixed interest investments remain fairly stable (at around 5% annualised). We believe that equities are likely to stay fairly stable – albeit with movement between the Growth stocks constituting the ‘magnificent 7’ 1 and the more Value stocks among the remainder.
The US Federal Reserve, meeting in January and March in this quarter, is not expected to make any change in the funds rate at either of those meetings.
Quarter 2 (April to June):
the fixed income markets are expected to continue to yield according to the pace set in Q1. The usual reactions to earnings reporting season for Q1 happening in this quarter, and the volatility of equity markets in May, are tampering expectations for this Quarter.
The US Federal Reserve will meet in April and June – but are only marginally expected to make any change to the current rate. To the extent that a change is anticipated, it is to the downside by a quarter of 1% – at the June meeting.
The economics forecasters suggest that this will be the Quarter in which the recession status will be affirmed – whether a mild recession, or a near-miss. Most forecasters favour the latter scenario.
Quarter 3 (July to September):
contains two of the traditionally most volatile months of the year (August, and September). The good news is that that volatility often delivers better outcomes for equity investors. By this stage, depending on the actions taken by Central Banks regarding rates, yields for this Quarter may be challenged to a mild extent.
The US Federal Reserve will meet in July and September – and are somewhat expected to make any change to the then prevailing rate, downwards (and probably by another quarter of 1%).
Quarter 4 (October to December):
the final Quarter for the year begins with the fourth of the traditionally most volatile months of the calendar year. Expectations are that this will be the case again this year, albeit with some expectation of positive returns for investors.
The US Federal Reserve will meet in October and December. Expectations are for a minor change to the then prevailing rate at the December meeting.
The current wisdom appears to be a forecast of real yields after taking inflation into account, on a diversified Balanced portfolio, could reasonably be in the range of 6% to 9% for 2024.
We take this opportunity to remind our clients that all of these ‘forecasts’ referred to in this article are near-term in nature. Most investment strategies that have been put in place for you, are time-considered. They take account of your circumstances, needs, goals and objectives . They are longer-term focused. The investment products included in your portfolios are selected with those criteria in mind and we maintain regular communication with the various Fund Managers to ensure alignment between your strategy needs and their investment philosophies.
1 [The ‘magnificent 7 stocks are Apple, Microsoft, Alphabet , Amazon, NVIDIA, Tesla, and Meta Platforms . It will be no surprise that these companies are all in the ‘Tech’ sector.]
(This article was first posted in February 2024. It may occasionally be refreshed/ updated.)
