What’s in store for the markets and economy in 2024?

This year, the markets and the economy have proven to be more resilient than many people thought, and the predicted recession never materialized. As the end of this year approaches, what can we expect of the markets and the economy in 2024? The outlooks from three financial-services firms  –  Citi Global Wealth, Bank of America, and JP Morgan –  will help inform our thinking and prepare us for what lies ahead.

Citi Global Wealth’s Wealth Outlook for 2024 said that though the U.S. economy is likely to slow down in early 2024, Citi Global Wealth believes that markets will focus on faster growth in the second half of 2024 and into 2025. This growth will be reflected in corporate earnings in 2024 (+4%) and 2025 (+8%) and will benefit the broader stock market. Citi Global Wealth is also forecasting a low likelihood of a recession in 2024 and predicts that “rolling recessions” in certain industries and sectors will fade in 2024 as markets for goods and services normalize.

“Markets lead economies,” said David Bailin, chief investment officer at Citi Global Wealth. “The ‘big reset’ reflects our view that higher strategic returns will be available over the decade and for many investors, may prove to be a time when fully invested, diversified core portfolios can capture market results across equities and bonds.”

The “big reset” will occur in a synchronous manner in both equity and bond markets. Investors should avoid sitting on the sidelines waiting for a signal to re-invest, which is unlikely to occur.

“We believe in balanced, “core” portfolios,” said Steven Wieting, chief investment strategist and chief economist at Citi Global Wealth. “We have also outlined some opportunistic strategies that include undervalued assets and areas where a catalyst for growth or change in market conditions exists. These include investments related to our long-term unstoppable trends, including longevity and the impact of artificial intelligence.”

For the first time, the Full-Year Outlook includes Citi Global Wealth’s top 10 opportunistic investment ideas:

1. Semiconductor equipment makers
2. Cybersecurity shares
3. Western energy producers, equipment and distributors
4. Copper miner equity/clean energy infrastructure
5. Medical technology & tools companies
6. Defense contractors
7. Private capital asset management firms
8. The Japanese yen and yen-denominated tech and financials
9. Private credit and structured debt securities
10. Normalization of the U.S. yield curve

See Citi Global Wealth’s Outlook report for full details.

Bank of America’s outlook

In their outlook for 2024, Bank of America’s Global Research economists and strategists note that they expect disinflation to continue and rate cuts to begin midway through the year, from both the Federal Reserve and the European Central Bank. Rate hikes seen over the last year and a half should ultimately weaken growth and lead to higher unemployment rates, though the firm’s economists are calling for a soft landing rather than a recession.

“2023 defied almost everyone's expectations: Recessions that never came, rate cuts that didn't materialize, bond markets that didn't bounce, except in short-lived, vicious spurts, and rising equities that pained most investors who remained cautiously underweight,” said Candace Browning, head of BofA Global Research.

“We expect 2024 to be the year when central banks can successfully orchestrate a soft landing, though recognize that downside risks may outnumber the upside ones.”

The key macro calls made for the markets and economy in the year ahead:

1. A global shift to rate cuts: Claudio Irigoyen, head of Global Economics, expects inflation to gradually move lower across the globe, allowing many central banks to cut rates in the second half of 2024 and avoid a global recession. Head of U.S. Economics Michael Gapen expects the first Fed rate cut in June and the central bank to cut 25 basis points per quarter in 2024.
2. The 3Ps = the 3Bs: Chief Investment Strategist Michael Hartnett thinks the bull markets of 2024 will be the “3Bs”: Bonds, Bullion & Breadth. He believes the risk of a hard landing for the economy is higher-than-expected and that he awaits the classic combination of bearish investor positioning, recessionary corporate profits and easing policy—the “3Ps”—before he flips to being a full bull.
3. S&P 500 forecast to end 2024 at 5000, an all-time high: The head of U.S. Equity and Quantitative Strategy, Savita Subramanian, remains bullish on equities not because the Fed is expected to begin cutting rates next year, but because of what the Fed has already done and how corporates have adapted. Earnings Per Share (EPS) can, and have accelerated as GDP slows, and reshoring has been identified as a tailwind by companies.
4. Seek quality yield in credit: Rates, earnings and issuance will likely challenge credit in 2024, causing the firm’s credit strategists to prefer quality. They believe investment grade offers the best relative value in credit. Loans offer more carry than high yield (HY) and HY credit losses are unlikely to be lower than loans.
5. U.S. 10-year Treasury yield should remain elevated: The firm’s U.S. Rates Strategist Mark Cabana is not as bullish as consensus on 10-year bond prices for several reasons: The U.S. fiscal stance has deteriorated, as has its net international investment position, and duration/inflation risk has become riskier.

The view from JP Morgan

JP Morgan also noted that the recession that everyone expected in 2023 never materialized. Looking into 2024, the firm’s strategists now expect that while the U.S. economy is likely to slow down, it should avoid a recession. The lower likelihood of a painful economic downturn should bode well for your investment portfolio and financial decision-making going into the new year, the firm said.

In their Outlook 2024 report, the Global Investment Strategists at JP Morgan focus on what a 5% interest rate world could mean for the economy, financial markets and your portfolio. Its strategists believe that this unique environment has opened pockets of opportunity for investors over the coming year. This will give investors more flexibility to choose different types of investment vehicles that align with their specific goals.

Here are U.S. highlights from JP Morgan:

• JP Morgan’s strategists believe that while the country could see a growth slowdown in the first half of 2024, growth should resume in the second half of the year. They have placed the probability of a deep recession at 25%.
• A shrinking gap between job openings and unemployed workers in the U.S, as well as a cool down in U.S. wage growth to less than 5% from a peak of over 7%, suggests that the Federal Reserve is making progress in its fight to reduce inflation.

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected]. 

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