Market Outlook 2024: Extending the investment horizon
Our central macroeconomic scenario for 2024 is for economic growth to remain in positive territory (but more limited, yet avoiding a global recession), inflation to ease (but remain high), and interest rates to start falling (gradually). We believe that central banks worldwide (with exceptions such as Japan and China) have raised interest rates to very restrictive levels that should be sufficient to moderate inflationary pressures. This change in the monetary policy stance is possible thanks to the confirmation that inflationary pressures are easing.
For the coming year investors should consider strategies beyond the short term to complement the safe haven currently offered by money markets following recent increases in official interest rates. Moreover, we believe it is an excellent time to build diversified portfolios, given the high yields available in both rate-sensitive assets (government bonds) and cyclically sensitive assets (corporate bonds and equities).
What will 2024 bring?
Discover our key messages and possible investment strategies to follow
Key messages in detail
1. Rates will fall in 2024
From "how high" to "how long". The impact of the steepest interest rate hike cycle in decades is proving to be more muted than expected. Consensus has shifted from the inevitability of a recession to a soft landing. The market now gives a high probability to an economy that can sail through without a major crash despite high interest rates.
Growth is resilient but not immune to rates. Underpinned by a strong labor market and a healthy financial situation, the private sector is displaying a considerable capacity to absorb the shock of rate hikes. A recession similar to past cycles is unlikely, but the environment will be one of low growth as long as financial conditions remain so restrictive.
2. Focus on four global shifts
Broadening the view of the cycle. Both the level of interest rate neutrality and the level of inflation are likely to be structurally higher than they have been in the past. Tensions between labor supply and demand appear to support a higher inflation rate.
Four major paradigm shifts. The first upheaval is driven by the need for a radical shift in the energy model to meet the challenge of decarbonization by 2050. At the same time, we are witnessing the most disruptive technological breakthrough since the advent of the internet with the dizzying growth of artificial intelligence solutions. We are also facing a shight in the geopolitical and economic balance as a result of growing mistrust between China and the United States. Finally, investors are witnessing a structural shift in the sources of corporate financing, with a greater role for private markets.
3. Investing beyond the short term
Harnessing both the short and long term... Investors currently have a wide range of investment options that offer returns above the average of recent decades. But none compares
as favorably to recent historical benchmarks as the return on shortterm government bonds. From a broader investment perspective, we believe it makes sense to be positioned in more diversified portfolios that can consolidate current high yields over longer horizons.
...and positioning portfolios for the next cycle. In this era of disruption, it makes sense to broaden the horizon of opportunities beyond more traditional and conservative assets. With a longterm perspective, investors may want to consider the combined effects of inflation and innovation and explore investments in equities and private markets.