What should investors pay attention to going into 2024
We have now left 2023, and looking back we can see it was a fantastic year for equity markets. Major global indices such as the S&P 500 finished the year up 25%, the DJIA posted 16% and the performance of the year was from the tech-heavy Nasdaq which surged 55% in 2023. In Europe we the Euro Stoxx 50 index finished up 19%. Ironically, despite the S&P posting 9 weeks of consecutive gains, the highest we’ve seen since 2004, the US index was unable to reach a new high throughout 2023, for the first time since 2012.
2023 was largely positive for investors, but now we look to what key events await us in 2024 and how investors should prepare themselves for what may come.
Prospects for interest rate cut in 2024
The big topic of everyone’s lips will remain to be interest rate expectations. During the wrap up of 2023 optimism rose regarding the prospect of earlier than expected rate cuts in 2024. In the US, the federal reserve has assured investors that where data looks positive the battle on inflation is far from over. Investors will be watching CPI data closely in the coming months.
In Europe inflation is falling faster and markets are expecting to see cuts earlier in 2024. Investors should note that when a country has a higher interest rate that currency will be more competitive and strengthen relative to other currencies. If we see cuts in Europe before the US that could be an indication of a strengthening dollar, as assets in the US become more attractive. Keep this in mind should you have overseas assets.
Expected earnings season on the rise
Q4 earnings season is set to kick off on Friday (January 12th), FactSet, a market analysis company have estimated a Q4 earnings growth rate for the S&P of 2.4%, which would be the second consecutive quarter of earnings growth. At the start of Q4 estimated YoY revenue growth was 3.9% but that has been revised to 3.1% respectively. Analysts are expecting earnings to grow by 11.5% and furthermore are expecting a 5.5% revenue growth for S&P 500 companies in 2024.
War and geopolitical tensions
Markets will keep one eye on tensions in the middle east. Recent escalations in the Red Sea in particular will keep investors weary of what may come. Further escalation may lead to growth opportunities in certain assets, particularly oil and gold. Safe haven assets such as gold and the dollar may seem attractive to risk adverse investors should conflict escalate. Further constraint on oil supply could affect oil prices should other oil producing countries join the conflict.
Key sectors to be considered in 2024
The 2023 end of year rally was mainly down to small and micro-cap benchmarks, upside momentum has been broadening for the Russell 2000, which measures the performance of the smallest 2000 companies in the Russell 3000 index. This bodes well for small cap stocks in 2024.
When we look back at history and understand how patterns evolve the picture looks more positive than some might think. Since 1921 through to 2023, the average S&P bull market has generated a return of 157% and lasted more than 4 years according to Sam Stovall, chief investment strategist of CFRA Research.
Technology was the sector the stood out in 2023, with the ‘Magnificent seven’ leading the charge thanks to huge developments in AI. Investors will continue to question the valuations of the magnificent 7 in 2024, it could be the case they will experience a correction In early 2024, but performance is still expected to be positive throughout the year.
Possible impacts of the U.S. election on markets
Other events in 2024 that may impact markets include the US elections, looking through history we can see that in most years throughout history where there has been an election in the US, markets have performed positively as shown on the chart below.
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