2024 Economic & Market Outlook
2024 Outlook for US Economy and Markets
Going into 2024, monetary policy had shifted to a new phase. After increasing rates for two years, the Federal Reserve announced that according to their standards, inflation had moderated, and employment was at a sustainable level and therefore didn’t feel further rate increases would be necessary. The US stock market reacted favorably and continued its upward trend in early 2024. Technology stocks and higher p/e stocks (such as software) that have stock prices based on forward-looking growth metrics, rose the most. It is often the presumption that technology boosts economic growth by making labor and natural resources more productive. Therefore, generally it makes sense to own growth and technology stocks when coming out of a bear market with easing monetary policies.
The fact that inflation has come down considerably from its peak is good news. However, the challenge that remains ahead is the amount of debt the United States has incurred and its potential harmful effect on economic growth. There is concern that fiscal spending could overpower monetary policy action in which the Fed would become incapable of containing inflation at a pace close to their stated target. There is also the concern that the large amounts of debt will slow down consumer spending and force companies to lay off employees. It is a delicate balance to keep inflation under control and economic growth at a productive level.
Looking further ahead this year, the Federal Reserve's monetary policy decisions will continue to heavily influence US stock and bond markets. The election will also be of significance, influencing government spending and fiscal policy. In terms of current geopolitical concerns, US markets are considering them to be short-term market disruptions, unless it becomes a worldwide issue.
The consensus forecast is that the economy is buoyant, rate of inflation has come down to more moderate levels, labor markets are robust, and the US consumer continues to show resiliency (albeit more cautiously). We hold the view that likely we can expect to see a rate cut around the election or towards year end. Until then, given current interest rate levels, it does seem prudent of the Federal Reserve to hold off on easing too aggressively.
Our Positioning
For many clients, we are positioned roughly in 1/3 US treasuries and 2/3 US stocks. Treasuries are paying 5% interest right now, which is an attractive, lower risk investment option that still yields a good amount of income. Within US Stocks, we have a tilt towards AI, Large cap technology/higher P/E stocks. It is our belief that Artificial Intelligence has staying power and will continue to heavily influence companies and our way of life. We have also added a moderate exposure to small cap stocks based on the expectation that the US stock market tends to look ahead and small cap stocks do well when lending is more accessible.
Get in touch if you have any questions.