2024 Year Forecast
Download a copy of the full report providing out outlook on the economy, markets, and how we’re currently positioning portfolios.
2023 turned out to be a much better year for the economy and markets than expected thanks to a fourth quarter rally triggered by a one percentage-point decline in key interest rates. Let’s look back to a year ago:
- Most economists had forecasted a recession to begin by mid-year due to high inflation and the torrid pace of interest rate hikes to fight it.
- In turn, companies were expected to struggle with recession leading to declines in earnings and stock prices.
- On the other hand, the outlook for bonds was encouraging considering investors could earn over 4% on their bond portfolio. However, the interest rate outlook was divided given the potential for recession fears to drive rates lower and persistent inflation to push rates higher.
In the end, though, investor caution proved unnecessary. The economy remained resilient, inflation moderated and, in November, the Fed signaled it had likely made its last rate increase for the cycle.
Now, as we look to 2024, expectations have changed considerably. Investors expect economic growth to slow from current levels but avoid a recession, and inflation is expected to continue to slow toward the Fed’s 2% target. Although the setup for markets is mixed, this year’s better economic outlook seems to hold sway with investors, given that securities prices already reflect favorable expectations.
Following is a brief summary of our outlook for stocks, bonds and alternative investments. We will publish a more detailed outlook for each asset class in the coming weeks.
Stocks: Time to rebalance. We expect continued gains should the economy avoid recession. However, we are mindful of downside risk considering elevated valuations with the S&P 500 Index trading near 20 times expected 2024 earnings.
Bonds: We expect another year of gains in 2024 considering yields are currently in the 4-5% range for investment-grade bonds and the Federal Reserve will likely be cutting rates.
Alternatives: We anticipate favorable performance in both absolute terms and relative to stocks and bonds. Potentially lower rates and continued elevated inflation should position alternatives to perform well.
