2024 Outlook

Economic Outlook

Navigating the Bumpy Road: A Cautious Approach to 2024's Economy and Investments

Hard landing? Not likely - we don’t foresee a deep recession as a realistic outcome for 2024 unless there’s a major, unexpected, shock to the system. Stickier inflation and low growth may create an unstable environment, but a hard landing is not the main act.

2023's economic turbulence is likely to linger in 2024 where resilience, disinflation, and a cautious Fed will be the key players, though we won’t be without greenshoots of hope. Here are the themes we see playing out in 2024:

US Leads the Pack: While the Eurozone navigates flat-ish growth and China seeks stabilization, the US economy is expected to be the most resilient. This doesn't mean smooth sailing - expect a slowdown in the first half, followed by a gradual recovery later in the year.
Disinflation's Uneven Dance: The battle against inflation will be long and uneven. Services inflation, particularly rent and wages, will be the last to budge, causing the Fed to maintain a cautious approach. Expect marginal easing towards the end of 1H24, likely around 75-100 basis points in the full year, not the 100-150 basis points that markets had priced in as of the 4th quarter of 2023.
Market Rotation: As growth picks up and the Fed pivots, a market rotation is inevitable. Large-Cap equities and duration-sensitive assets like long-maturity bonds will likely take the lead (and already have in late 2023), but don't overlook the opportunities in other sectors. Look for cyclical, value-oriented, and small-cap equities to outperform, along with emerging markets once global recovery takes hold.
Risk Remains, But Avoid Panic: Geopolitical tensions and oil price shocks are ever-present threats, but remember, wars typically have less market impact than feared. Instead, focus on the real risk: sticky services inflation. This could lead to delayed rate cuts or a target inflation adjustment by the Fed.
A Brighter 2H24 and FY25: The second half of 2024 and 2025 hold the promise of solid growth. By then, we'll be clearer about the global recovery, and Europe and China may even steal the show from the US.

So how are we positioning ourselves? While the market expects aggressive Fed cuts, we’re advocating for a cautious approach. We’re continuing to take advantage of 5% money market returns and low-duration investments (like bank loan funds) and will begin to take on risk and gradually increase our equity allocation toward the end of the first quarter.

In 2024 look to embrace the uncertainty, stay flexible, and focus on the long-term trend of recovery. Remember, resilience, disinflation, and a cautious Fed will be your guides on this bumpy, yet ultimately optimistic, journey.

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Economic Outlook

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