10 themes that could affect your 2024 investing….

Larry Adam, Raymond James Chief Investment Officer, recently did a compelling client webinar on his economic and market outlook for 2024. Because they are important points to consider, I am summarizing them here for a quick read.

1. The U.S. Economy

The most talked about recession in history has yet to materialize. We still believe that a recession will start in 2Q, but it will likely be the mildest ever. Indeed, it may be so mild that markets barely notice it. We expect the recession to be mild because there are no excesses in the economy as it has been rotating from hot to cold over the last few years.

2. Monetary policy and Chairman Powell

The Federal Reserve (Fed), led by Chairman Powerll, was under pressure to cool inflation. Chairman Powell steadily increased interest rate over the last 18 months and curbed inflation from 9% to 3.1% currently. Since raising rates seem to be done, the Fed will turn its attention to fattening the economy as growth concerns mount (i.e., a modest rise in unemployment and a potential recession). Some are anticipating the possibility of as many as six interest rate cuts in 2024, but we believe that is overly optimistic; we favor three or four. More rate cuts than that would likely mean the economy is struggling more than we anticipate.

3. Fixed Income

Fixed income investors for the last few years may have felt like they were in bad shape. However, the underlying business and fundamentals are in place and a makeover is all that’s needed. That makeover occurred in the bond market as the sharp reset to higher interest rates gave long-term investors an attractive entry point.

4. U.S. Equities

Investors will need to be more selective in 2024 with their sector, region, style, and market capitalization choices. That’s because a lot of the good news has already been priced into the market, including expectations for a soft landing, Fed rate cuts and easing inflation. Given our expectation for a mild recession our expectation is that earnings growth will be only 2% to $225 for 2024.

5. Sectors

With a slowing economic environment, earnings growth will be a decisive factor in determining sector performance.

6. Small-cap equities

Underperforming small-cap equities may appear unappealing at first glance, but fundamentals under the surface make them worth visiting.

7. International equities

When looking at the global equity markets, U.S. equities are still our prime choice. Developed market international equities are ‘sale priced’ relative to U.S. equities, but growth headwinds could spoil earnings trends in the coming quarters, particularly in Europe.

8. Energy

Discipline is important in the energy market. In 2023, OPEC+ was disciplined for controlling oil supply. And private companies – especially smaller ones – exercised careful capital discipline in drilling for additional oil. In general, we believe energy production discipline will continue to limit the growth of the oil supply.

9. Volatility

Volatility was relatively modest last year from a historical perspective. Why? Because of exceptional pessimism at the beginning of last year. Investors feared a recession, stubborn inflation, imploding corporate earnings and the Russia/Ukraine war. In retrospect, that pessimism was overstated; each of those dynamics had surprisingly more favorable outcomes – at least in the markets’ eyes. In 2024, we appear to have the opposite view: uber-optimism leaves the market vulnerable to disappointment, therefore, we anticipate more volatility in 2024.

10. Asset Allocation

We place a lot of attention on building an asset allocation that matches your risk tolerance. We are factoring in a modest upside for most asset classes in 2024, but don’t let a so-called ‘everything rally’ distract you from maintaining a commitment to a well- structured asset allocation. It is tempting to splurge on whatever looks good today, ignoring a more balanced approach. Asset allocation strategies, for the most part, should be in place long term, particularly in challenging and more volatile markets.

Of course, if you have any questions, or want to discuss how these themes may affect you, please schedule a phone meeting with us.

To listen to the full client webinar, please visit the replay link below.

https://www.raymondjames.com/investment-strategy-client-call?elqTrack=true

From all of us at Briggs Wealth Management, best wishes for a happy, healthy, and memorable 2024!