At the beginning of 2023, most people thought that a recession was coming because of the Federal Reserve’s sharp rate hikes in 2022. But the U.S. economy showed a lot of strength, defying fears of a recession and providing strong market performances, especially in indices like the Nasdaq-100 and the Dow Jones Industrial Average.
Major banks, advisors, and wealth managers all have a similar but not completely agreed-upon outlook for 2024. They think that interest rates will start to have a bigger effect, which will cause the economy to slow down.
This is likely to cause central banks to change their policies to be more flexible, which will set the stage for a market recovery later in the year. After a rise in the last few weeks of 2023, stocks and bonds are expected to keep going in the right direction, though with smaller gains.
The year of bonds
Some institutions, like Amundi, JPMorgan Asset Management, and Vanguard, think there will be a slight recession. Others, like BNY Mellon Wealth Management, see it as a “healthy and welcome slowdown.” Barclays agrees with this point of view and expects a “soft-ish” landing. Many companies are telling investors to focus on good stocks, spread their money across different industries and areas, and take advantage of some of the best yields in fixed-income investments seen recently.
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People are also saying that 2024 will be the year of bonds, which is the same thing that was said about 2023. Since interest rates are currently high and are expected to go down soon, the fixed-income sector is seen as a good place to make money by both stock gains and yields.
This is mirrored in the advice given by JPMorgan Asset and Franklin Templeton. Franklin Templeton suggests a focus on fixed income. But what happened in 2023—when bond expectations were wrong because rates kept going up and stocks went through the roof because of a rush of AI—should teach us a lesson.
The events of 2023 have taught leaders to be humble and careful as they enter one of the most difficult years of their careers. The next 12 months will likely be crucial for deciding the endgame in the fight against inflation, the direction of the current business cycle, and big changes in politics, especially since the US election is coming up soon. In most predictions, there is a sense of caution. Few companies are ready to make bold calls in such a risky year.
Some professionals are getting ready for a rough landing in the US
There are, however, views that are different from the majority. Some companies, like Robeco and BCA Research, disagree with the majority view, calling it too optimistic or even a “fairy tale.” For example, Deutsche Bank is getting ready for a rough landing in the US.
On the other hand, some views are positive. UBS Asset Management and Commonwealth Financial Network both think that stocks could go up a lot, especially if the economy has a safe “soft landing.”
The upcoming election in the US makes things even less predictable. Many companies, including Citi and HSBC, are holding off on making predictions because the election cycle is still very early. Other companies just expect the market to be more volatile. UBS has gone one step further by describing a particular possible outcome of a Trump-Biden impasse, which could lead to outside interference or a choice by the House of Representatives.
When looking back at how the stock market did in 2023, many analysts had expected a decline, but the year ended up being the opposite. The U.S. stock market did very well, with the Nasdaq-100 measure rising over 53%. The Dow Jones Industrial Average also did very well. This wasn’t what the Fed’s interest rate hikes, which went on until 2023 and reached levels not seen since 2001, were supposed to do.
For example, Goldman Sachs and other brokerages have changed their estimates for the U.S. stock market in 2024. FactSet says that the median goal for the S&P 500 is set at 5,068, which means that the stock should rise by just over 6% each year. For the past few decades, the S&P 500 has averaged 10% annual gains, so this prediction, while good, falls short of that.
There are different opinions among major banks about the future. Goldman Sachs, Deutsche Bank, Citigroup, and Bank of America are among the optimistic banks, while JPMorgan Chase and Morgan Stanley are more pessimistic.
In 2024, investors need to be aware of many risks. If oil costs suddenly go up, it could cause an inflation shock that undoes the progress made in taming inflation and derails the planned soft landing of the economy.
The U.S. stock market seems overvalued, especially after the Santa Claus rise in December. This means there isn’t much room for growth and bad news easily affects the market. Even though worries of a recession have been eased somewhat, it is still a possibility, as shown by the growing
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