SUMMARY
Talk is growing that a poor opening week for markets in 2024 signals a tough year for investors ahead. While we do expect more volatility in some of last year’s big winners, we see a broadening rally across many assets in the months ahead.
For the last two months of 2023, both stock and bond markets went in one direction, up. For the fourth quarter of 2023, global equities rose 11.0% and bonds +6.8%. This was driven by convincing data showing that the Fed would not need to crash the US economy to push inflation lower.
The fact that equities and bonds rose together in the final quarter of 2023 shows how important the expectations for a change in Fed policy - from driving down inflation to potentially protecting an economic recovery - has been.
In 2023, the stock market indices were driven higher by large gains for a handful of firms. Yet, the first few days in 2024 indicate that investors doubt that multi-trillion-dollar US tech franchises can continue to beat earnings expectations after a projected 44% earnings per share (EPS) gain in 2023.
Investors can easily be misled by share price movements around holiday periods when market volumes and liquidity are low.
For 2024, we believe a broadening recovery for the equity market is likely to co-exist with a pause and more volatility for last year’s leaders.
The expectation for near-immediate Fed easing is impatient and exaggerated. Yet the economic outlook is pointing to a healthier growth period ahead even if the Fed does not provide immediate rate cuts.
