We are nearing the time of year when investors attempt to look ahead to safe guard or grow their holdings, so the question on everyone’s mind is how will the stock market perform in 2024. Are we in for another bullish run or is it time for an abrupt correction? How will either affect your investment strategies?
Revered Wall Street analysts have weighed in from nearly every quarter and while mostly neutral to positive, there are some detractors calling for caution for the twelve months ahead. So what are they saying?
Wells Fargo has come out with a tepid forecast, Chris Harvey, the company’s head of equity strategy, only sees the S&P increasing by a mere 75 points from where it closed on Monday, while Bank of America is all blue sky with a prediction that the S&P 500 will hit a 5,000 target. Of course you have JP Morgan calling for doom and gloom with its forecast of an 8% drop in the S&P hitting 4200.
Is there a winner? There is no crystal ball which makes it near impossible to call the future with any certainty, but perhaps you can prepare yourself better knowing the facts that these market analysts used to make their prognostications.
First let’s take a look at what has been making headlines since the beginning of the year, rising Fed interest rates. The U.S. Federal Reserve led by Chairman Jerome Powell, raised rates 11 times since March 2022 for a total of 525 basis points or from 0.25% to 5.50%. All this was done in an effort to slow the economy and reduce a ramping inflation rate which peaked at 9.1% in mid-2022. The Fed’s rate manipulation eased things to 3.7% by September 2023, 1.7% shy of the original target of 2%. However, many investors are confident the Fed has ostensibly reached its goal and is destined to cut rates in the new year. This optimism has been priced into the stock market, creating a bull run in 2023, but will this bull run continue? If the Fed doesn’t drop rates as quickly as anticipated, this positive preparation could turn into a double-edged sword.
Do I hear recession? In Canada, the economy actually shrank 1.1% in Q3 while the U.S. just went through a major autoworkers’ strike, narrowly avoided a government shutdown and exposed students once more to a loan repayment schedule as mortgage rates continue to pop. The 2023 retail market jocularity and consumer spending rush was mostly fueled by pandemic fed-coffers which are emptying fast. The EU is slated to swerve past a serious economic contraction, but growth is flat which doesn’t bode well for a recovery. Globally speaking, economic growth is forecast to slow to 2.6% in 2024. While no planet-wide recession is expected, the idea of region economic woes is still open for debate. In fact, despite general optimism of a soft landing in the U.S., there are some Wall Streeters who believe a recession below the 49th has only been temporarily avoided in 2023 and is bound to hit in 2024.
Stock market volatility is up with the VIX, the CBOE volatility index, increasing to 13. According to Wells Fargo analysts, this magic number at the end of one year is a strong indication that there will be even more spikes in the following 12 months. It is not surprising then that Blackrock is predicting a generalized rate disappointment when the Fed doesn’t drop rates at all or drops them more slowly than the market has priced in, setting off a series of volatility spikes that will seriously unnerve the retail market. Draining money and consumer confidence in 2024.
But what about business? The rising cost of capital may also impact the ability for corporations to expand and innovate in the new year, but there are some who feel that American industry has already adjusted to the new economic norm and won’t be severely impacted if the economy stays put or sours slightly.
What’s happening in gold? Gold is what is called a safe haven asset. These assets have an inverse relationship with economic and geopolitical stability and as such provide respite from a cruel world for stock market investors seeking to protect their wealth. The Israel/Hamas conflict saw Au climb 7%, popping over $2,000 USD per ounce for the first time since May. Analysts are looking for gold to continue at current levels, averaging out to $1,964 USD during 2024. Silver is even expected to outperform gold in the new year due to our shift to renewable energy, specifically solar panels. What would push gold higher? According to Carsten Menke from Julius Baer: “a return towards record-highs should only be possible in case of a severe slowdown of the U.S. economy, leading into a longer-lasting and broader-based recession.”
China powered its 21st century economic boom through massive infrastructure funding and government loans. This pushed the country beyond its real growth, creating ghost cities and a currently stalling economy. China is one of the world’s largest consumers of resources and a massive producer of global consumed products, its economic health is inexorably linked to the global condition, so if its domestic woes continue, it could drag down the U.S. as well as Canada and the EU. Since it is a government-controlled closed system, it is hard to predict where it is heading next, so the direction of its economic health is a speculative topic, but it cannot be discounted as a possible anchor around the neck of the world’s financial system.
So where does all this leave stock market investors?
Investors typically turn their equities into cash during periods of uncertainty and a great many have done just that during and after the pandemic so they can pull the trigger during better times, but as 2024 breaks the horizon, they made find themselves behind the wave on action-less cash as new opportunities develop quickly in the bond and equity markets. So where should they put their hard earned dinero?
Well, big tech stocks with their continued over valuation may not be the place to sock away your investment nest egg over the next five years as the P/E balloon begins to deflate. It may be smarter to place your money on oversold stocks like utilities and healthcare which have good fundamentals in terms of consistent revenues and decent income. Not flashy like AI, but while the market finds its reality, a safer bet. Treasuries aren’t glitzy either, but they get the job done without a huge amount of hassle.
So will the bull market continue? Whether you buy the Cinderella story or think that rates, inflation, geopolitical risks and consumer woes will cause the sky to fall, it may be best to consider the adage, hope for the best, but prepare for the worst.
–Gaalen Engen