Market Outlook for 2024: Monetary and geopolitical challenges

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Vrasidas Neofytou
Head of Investment Research

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Market Outlook for 2024: Monetary and geopolitical challenges

Macroeconomic risks, central bank policies, volatility, and geopolitical challenges will be at the centre of the thinking of the investment community and the political scene in 2024.

We expect that the following two market-price events will dominate the global economy in 2024:

1. Monetary challenges:

  • We are optimistic that the global central banks are done with their aggressive interest rate hikes and tighter financial conditions as inflation decelerates.
  • Although the outlook on economic growth and inflation remains uncertain, we expect the major central banks to begin gradually easing rates by mid-2024.
  • 2. Geopolitical risk:

  • It would be one of the biggest economic threats in 2024 as geopolitics have become a structural market risk following Ukraine’s war and Middle East tension.
  • We think that an unstable geopolitical landscape could lead to a greater economic and financial volatility in 2024, from an exacerbation of current hostilities or new heatmaps, to inserting protectionist policy as a stalemate in trade frameworks (USA-China, U.S Presidency Elections).

  • 2023 Market Reaction:

    The year 2023 began with widespread worries of an economic “hard landing” or at least a “soft landing”, based on the potentially destructive consequences of the Federal Reserve and other major global central banks’ raising interest rates, the surging energy and food prices, and the negative consumer sentiment.

    But as the year was coming to an end, the plot shifted to talk of the central banks’ cutting interest rates, driven by the cooler-than-expected inflation, the falling energy prices (despite the ongoing geopolitical threat), and the resilience of the labour market, which led to a softer U.S. dollar and bond yields.

    In this context, all three major U.S. indices ended up by double digits in 2023 and near their all-time highs. The tech-heavy Nasdaq Composite led the way, posting gains of nearly 45% (its best year since 2003), outperforming amid mega-cap technology’s rally (despite higher rates), and the AI-artificial intelligence frenzy.

    The S&P 500 ended 2023 within striking distance of its record, up 24%, while the industrial Dow Jones index ended the year higher by 13% on a risk-on sentiment.

    All in all, the financial market and the economy have shown remarkable resilience and survival skills after the four most adventurous years in modern market history, where we had the Covid-19 pandemic in 2020, the global supply chain crisis in 2021, the Ukraine war in 2022, and the record-high interest rates and inflation in 2023.

    Chasing 2024: A positive year-end outlook:

    As the financial market entered 2024 at near all-time highs, and as we have a clearer view on inflation (easing), economy (possible a “soft” landing instead of a “hard” landing), and central banks (possible rate cuts in H2, 2024), we have concluded on the following major market forecasts for the new trading year:

    1. We see the S&P 500 rising to 5,200 and Dow Jones Average Index to 41.000 by the end of 2024 on a stronger U.S. economic growth and increased profit growth estimates, implying a 5%-7% gain from early January 2024 prices.

    2. We predict the tech-heavy Nasdaq Composite to jump up to the significant 20,000 milestone this year on AI-related frenzy, chipmaker’s rally, and the mega-cap tech rally, implying nearly 15% gain from early January 2024 prices.

    3. AI-artificial intelligence hype (that supported the mega-cap tech rally in 2023) is expected to continue supporting the tech trade in 2024, leading Nasdaq to fresh record highs.

    4. We are bullish on the rate-sensitive small-cap stocks, and we expect the small-cap Russel 2000 index to advance as high as 2,300, driven by expectations of a dovish monetary policy shift by the Federal Reserve in H2,2024, implying almost 15% gain from early January 2024 prices.

    5. We expect that the stronger-than-expected U.S. CPI and PPI inflation data, the resilient U.S. economy, the strong labour market, and the solid corporate earnings growth could prompt the Federal Reserve to delay its well-awaited monetary policy pivot until the second half of 2024.

    6. We see fewer interest rates cuts (maybe 3) this year than market had hoped, starting probably in June, as the Federal Reserve may have to wait until later in the year before it starts cutting rates. Policymakers may need more time to make sure inflation is on a sustainable path back to the Fed’s 2% target.

    7. We expect Wall Street to become more bullish on small caps, financials, debt-sensitive renewables, emerging markets, and growth-linked currencies, when the Federal Reserve will end its tightening monetary policy campaign.

    8. It is expected that the slowing inflation pressure and the Fed’s policy pivot in H2 might ease U.S. bond yields from their 16-year highs, leading to a softer U.S. dollar against growth-sensitive peers such as the Euro, Pound Sterling, Japanese Yen, Australian and New Zealand dollars, and dollar-denominated commodities.

    9. We predict emerging markets outside China, notably India, Brazil, and Middle East to remain strong and resilient on the geopolitical risks and likely remain in expansionary territory, reducing concerns over the prospect of a global recession.

    10. European economy, notably Germany, is expected to grow at nearly zero rate on higher energy and raw material costs, lower manufacturing, and services activity.

    11. China’s economy will likely continue trade in contraction territory due to the steep downturn in the country’s struggling property sector, and the reducing local consumption.

    12. We also expect the global financial markets to show resilience to the ongoing geopolitical tensions in Ukraine, Red Sea, and the Middle East, preventing the crude oil prices to rally over $90/b.

    13. Finally, investors will have a close look on the potential of a Biden-Trump rematch in 2024’s U.S. presidential race on Tuesday, 05 November, and they will keep an eye on which sectors are most likely to be affected by key policy changes.

    The new target prices for 2024: (Predicted early January 2024)

    U.S. major indices: Optimistic calls on stocks:

    S&P 500 index: 5,200 (up 5%)
    Nasdaq Composite: 20,000 (up 15%)
    Dow Jones Average Index: 41,000 (up 7%)
    Russel 2000: 2,300 (up 15%)

    Commodities: Bullish on a softer dollar:

    Brent crude oil: price range $75-$85/b
    Gold: price range $2,000-$2,250/oz
    Silver: price range $22-$24/oz
    Copper: price range $3.70-$4.00/lb

    Forex & Cryptos: Dollar down, major peers up: price range:

    DXY-U.S. dollar index price range 102-105.
    Euro: price range $1.07-$1.12.
    Pound Sterling: price range $1.23-$1.30.
    Australian dollar: price range $0.63-$0.68.
    New Zealand dollar: price range $0.58-$0.63.
    Japanese Yen: price range ¥145-¥152.
    Bitcoin, Ethereum, and Solana to retest their all-time highs.

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