Will 2024 Be a Bumpy Ride or Smooth Transition for Investors?

For investors, 2024 could hold surprises as the world adjusts to an economic order where money is not cheap. However, investing could provide opportunities in the years to come for those who understand their risk tolerance and time horizon.

Investors appear convinced that major Western central banks are close to a long-awaited pivot from raising interest rates to cutting them. That would be a welcome change after two decades of rising rates that helped push many countries into recessions and depressed global growth. But it would also leave policy rates near 4%, well above the “neutral” rate at which the economy neither grows nor contracts. In that case, monetary policy would still drag the economy.

In contrast, analysts at several Wall Street banks expect inflation to continue to ease. As a result, they believe the Federal Reserve and other central banks could cut rates next year without pushing back into recession. That could lead to a Goldilocks environment for stocks and interest-rate sensitive bonds.

That outlook is helping drive a rally in stocks, with the S&P 500 within striking distance of its all-time closing high. It is also helping boost bond prices and push yields lower. However, many investors have cautiously underweighted bonds as they prepare for a possible recession.

Some analysts believe the stock market’s recent rally will prove resilient and that the S&P 500 will close out 2024 at a record high. But they warn that many of the market’s gains have been driven by a small group of companies, Magnificent Seven, which have boosted returns this year and raised expectations for earnings growth in 2024.

Investors will also need to contend with a slew of potential risks, from the possibility of a global recession to political turmoil in Europe and an uptick in oil prices that could hurt consumer spending. Others point to the slowdown in the Chinese economy, which has already sent a ripple effect around the globe.

Despite these risks, investors shouldn’t let short-term market volatility stop them from investing. Taking an appropriate approach for their risk tolerance and time horizon, with an asset allocation that includes a variety of assets and strategies designed to mitigate interest-rate risk, can help them ride out the inevitable bumps in the road.

Most Popular