With 2023 drawing to a close, and with 2024 fast approaching, we provide an outlook on the year ahead. We give our thoughts on the inflation outlook, monetary policies, macro-economics, earnings growth prospects, valuation opportunities, style leadership, thematic opportunities, and risks.
Overall, 2024 is likely to be a year with a lower degree of forecast and prediction error than 2023. This is due to the probable shift to synchronised interest rate cuts in the second half of 2024. We forecast stickier, longerlasting inflation, with slowing economic growth both globally and in the US and China, and ongoing stagflation in Europe and the UK. Corporate earnings growth is likely to be pedestrian across regions.
Despite this muted growth outlook, the global synchronised pivot in central banks policies towards rates cuts, which we predict to occur in the second half of 2024, has the potential to be supportive for equity markets and in particular for quality growth style leadership in 2024. Geopolitical risks have flared up however, so there is potential risk of ongoing volatility. The election cycle is also going to be an important focal point, related to the US presidential elections towards the back-end of the year.
Wishing our readers and investors a joyous festive period, and a happy, healthy and prosperous new year 2024.
Our key thoughts are summarised in the bullets below, with details on each in the report:
- Inflation could end up being more elevated and longer lasting in 2024, despite general easing in pressures coming through
- Wage inflation, deglobalisation, technological and geopolitical fragmentation, and the energy transition have the potential to keep inflation structurally more elevated in the medium-term.
- Monetary policies have peaked or are close to peaking, but we do not expect any pivot towards cuts in western central bank rates until the second half of 2024.
- Central banks have become data dependent, which will likely fuel market volatility around upcoming inflation prints.
- Macroeconomic momentum is at risk of weakening, leading to ongoing stagflation in Europe and the UK in 2024, and slowdown in the US and China economies.
- Rising risks of recession given rapid rate hikes in 2022-23, even if still not our central scenario for the US.
- China is facing a slowdown and structural headwinds, with the absence of additional policy initiatives.
- We forecast top-down corporate earnings growth to remain pedestrian and weak in 2024, with low-mid-single digit growth across geographies.
- Ongoing risk of earnings downgrades, given optimistic consensus earnings growth.
- Monetary policies shifting towards cuts in H2 should be supportive for equity markets in 2024, and for the Quality Growth style leadership within that.
- Equity valuations remain more supportive in Europe and Asia, although a selective approach remains key, given specific geographic and geopolitical risks.
Style leadership and quality growth equities
- Focus on companies with resilient earnings growth, exposed to long term structural growth themes, that have pricing power and solid balance sheets given the uncertain macro and inflation environment, and low growth prospects.
- Thematic opportunities for long term investors still abound, notably in the areas of energy transition, ageing population and artificial intelligence.
- Disruption rates for corporates are likely to accelerate given the seismic shift brought by artificial intelligence across all areas of the economy and all sectors.
- Plenty of risks for investors to take into account in 2024. Notably ongoing fiscal and monetary policies risks, the still uncertain inflationary backdrop, style leadership and equity markets volatility, margin pressures, higher tax rates, low structural growth and geopolitical tensions.
- An ever more disruptive decade is accelerating in 2024 and beyond given the developments in Artificial Intelligence.
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