How will 2024 pan out?

As we enter 2024 the markets are treading water, as the global economic landscape appears poised at a critical juncture. After a strong market rally in December, the US Federal Reserve provided the clearest signal so far that interest rates have peaked. This gives the assumption that inflation was tamed, with some pundits expecting interest rates to start being reduced early in the second quarter of 2024.

In the US…

The economy remained robust whilst inflation was falling, thus allowing the Federal Reserve Board to manage a lowering of rates with the expectation of avoiding a recession. One thing to note; when the rate cutting cycle starts, history has shown the US usually goes first. In the UK and Europe, similar expectations ensued for inflation and interest rates, but the difference is that those economies are weaker than the US. This means that interest rates must fall to provide support.

In Europe…

The European Central Bank’s Christine Lagarde has said she thinks rates have now reached their peak. Legarde believes the euro zone has passed the hardest and worst part of the inflation battle and that rate cuts can start once the data confirms this. However, the question remains ‘Are we over the worst or is this as good as it gets, will 2024 be a year defined by a silver lining or still confronted by headwinds?’.

From the recent US consumer price inflation figures, for now the narrative from the Fed is hawkish, this could drive bond yields higher and risk assets lower. This inflation reading could affect expectations, regarding the next move in monetary policy, the anticipation for an interest rate cut in March has now subsided. However, economic concerns should not stop investment, even though we could see further volatility throughout 2024.This volatility could provide a great opportunity to pick up reasonably priced shares.

My Thoughts

I feel that equities are likely to perform better in the first half of this year with the UK benefitting due to valuations being lower than other markets. We could also see investors diversify out of cash. 2024 is going to be an interesting year, especially as many countries (including the UK and the US) have elections – although historically elections have had little impact on the markets.

Wishing you all a Happy New Year and remember investing diversification is as important as ever.

If you would like to discuss your current investments or future plans we would be happy to schedule a call – Contact details for the CFM team are here and my contact details are:
E: stephen.lovelock@capitalfinancialmarkets.co.uk
T: 0203 6970561.

Stephen Lovelock, January 2024