Market professionals expect:
- Inflation and economy to land softly, with no major recession in sight.
- Positive but not overwhelming returns for both stocks and bonds.
- Emerging markets, gold, and the Japanese yen to perform well.
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Most financial professionals expect to see some economic challenges in 2024, moderate growth and a potential risk of a (mild) recession, particularly in the first half of the year.
Inflation has already come way down and it’s expected it’ll continue to drift lower, though probably not hitting central banks’ 2% targets until later in the year. So many are expecting rate cuts to happen around then, as economies and inflation indicators stabilize.
There remain risks out there: heightened geopolitical tension, a harder-than-foreseen recession, and fallout from national elections around the world, including in the US. In addition, US government debt dynamics are concerning, and there’s the risk of a delayed impact from previous interest rate hikes and inflation dynamics globally.
But overall global economies have just emerged from a tricky time, and things are mostly becoming less-tricky.
Stocks and bonds expected to do pretty well
There’s definitely cautious optimism on Wall Street about stocks, in particular for companies with strong fundamentals, robust earnings, and minimal debt. US tech stocks and Europe’s so-called “granola stocks“ could still be stars, even though their valuations are quite rich. Emerging market stocks, especially from across Asia, are drawing eyes for their growth potential, while small – and mid-cap stocks could be the dark horses in a recovering economy. But US shares – with valuations still high and optimistic earnings projections – have some investors raising their eyebrows.
Bonds are fueling a similar kind of expectation, with a tasty mix of income and the potential price gains that’d happen when the Federal Reserve (the Fed) begins to cut interest rates. The pros’ top advice is to favor high quality – we’re talking government bonds from the safest countries and top-tier, investment-grade corporate bonds: they should benefit most from falling interest rates and are better insulated against any default risk. For the bold and brave, emerging market debt and short-term high-yield bonds might be tempting, but remember, they come with their own set of challenges (like higher refinancing costs).
And there are a few other interesting views out there too.
Emerging market assets are drawing a lot of attention right now. The consensus is quite optimistic about Asia, which could benefit from a rebound in earnings and a weaker US dollar. Opportunities are also seen in India, Indonesia, Mexico, and Brazil, with a focus on sectors that will benefit from the green energy transition and other tech advances. But the gains here could be choppy, thanks to a still-fragile global economy and potential geopolitical risks. Likewise, most professional investors are taking a very cautious approach to China as the macroeconomic and government policy risks are still extremely high.
There’s not a clear consensus about what the year will be like for commodities. The broadest agreement is around gold, which is seen as a solid portfolio diversifier and could reach new highs, thanks to renewed central bank purchases and geopolitical uncertainty. Industrial metals, meanwhile, could face volatility due to economic conditions, but their long-term prospects are generally seen as positive, especially for those linked to the energy transition. And although a lot of experts expect oil prices to remain high because of robust global demand, geopolitical risk, and supply dynamics, plenty of others disagree.
On currencies, the consensus is that the US dollar will weaken as the year progresses – thanks to a weakening but stable global economy and rate cuts by the Fed. This means other currencies might shine, but it’s not a one-size-fits-all story. The euro and the British pound are expected to have a rougher time, thanks to not-so-great economic fundamentals. But the Japanese yen could have a stellar year, as its government bond yields start to align more with other currencies. And don’t forget about the potential winners among emerging market currencies: they could get a leg up from a softer dollar and a still-kicking global economy.
What’s the opportunity, then?
Higher interest rates might keep the economy on a low simmer, but if 2023 showed us anything, it’s that the economy’s got grit. Overall, then, you can’t go far wrong following the smart money’s bets on high-quality stocks and bonds, with a dash of emerging market shares and a pinch of commodities thrown in.
Just don’t take this “consensus view” as gospel. The market’s known for throwing curveballs just when everyone’s nodding along in agreement – remember how the crowd got it spectacularly wrong in both 2022 (a bearish shock in a bullish room) and 2023 (a bull dance in a bear cave). That tells you something: when everyone’s singing the same lyrics (i.e. when the views of the herd are already priced in), any off-key note can send the tune in a new direction (i.e. wild price swings). So take note of what the consensus is saying, but keep an eye out for those market curveballs – both positive and negative.
Final thought: don’t put all your eggs in one scenario basket. Make sure your portfolio is built to perform well in your most likely scenario – but can handle alternate ones too. That probably means owning not just stocks, but also bonds, gold and other commodities, and maybe even some higher-shelf cryptocurrencies. Holding some US dollars in a higher-yielding cash account is probably also not a terrible idea: after all, the greenback is the one asset that’s likely to perform well if everything else is crumbling. Plus, it’ll allow you to keep some powder dry so you can seize on the opportunities that will surely present themselves.