AI Wealth asked key partners to forecast financial trends for 2024. Here are their findings.

Evelyn Partners

Equities over bonds

Our main proprietary indicators suggest the world economy is in a recovery phase. This is usually good for stock markets and we retain a preference for equities over bonds as a result. Bonds remain vulnerable to the ebb and flow of central bank policy. Stock market valuations remain undemanding, particularly outside the US. In the States market leadership is broadening, moving beyond the ‘magnificent seven’ of AI-related stocks that have dominated year-to-date. The number of companies in the S&P 500 with positive returns is still below average, but higher than it was six months ago.

Keep an eye on valuations

Although our preference is for equities over bonds, we are cautious on valuation grounds. In terms of sectors, financial, materials and communication services are relatively cheaper, while interest rate-sensitive sectors such as real estate look expensive relative to their earnings growth. Asia offers better value than other regions, particularly given the growth it offers.

Managing volatility with themes

Identifying long-term themes can help to manage stock market volatility. Areas of structural growth and megatrends, such as technology, and demographic change, are less vulnerable to the economic cycle and periods of weakness. In energy, for example, we see less investment in new oil and gas fields, as capital has been diverted into clean energy projects, while OPEC reduces supply to keep prices high.

Short-dated bonds for lower risk

The Fed has reduced market expectations on interest rate cuts in 2024. Longer dated government bonds have reacted to this ‘higher for longer’ environment. Yields have risen and prices fallen. The US economy has been robust, which could support higher inflation and consequently higher interest rates. The fourth quarter is likely to be weaker, with student loan repayments restarting. However, we still see greater risk on longer dated bonds which are more sensitive to changes in interest rates. This leads us to shorter dated bonds, which are also less correlated to equites.

Despite the threat of higher interest rates for longer, global growth is holding up. In the current climate, where the possibility of a mild recession in developed markets is already being factored into investors’ expectations, this could provide investment opportunities, as well as risks for investors.

Evelyn Partners

LGT Group

Looking forward, the focus may shift from inflation to growth. The delicate balance between controlling inflation and sustaining economic growth poses challenges for policymakers. The interplay between these factors will be critical in determining the reason why central banks decide to cut interest rates next year, which we believe will turn out to be a crucial question. We are closely monitoring how these dynamics unfold, as they have the potential to shape the economic narrative in the months to come.

LGT Group

Rathbones Investment Management

Looking forward into 2024 we are very cautious on the broader outlook. The rise in interest rates has had a knock on economic growth and it very much looks like the majority of western markets are headed for recession. Now we do not believe there will be a 2008 style GFC with both consumers and financial institutions in far better shape than back then but we still are retaining our cautious positioning headed into 2024 prioritising quality companies with resilient business models, low leverage and high returns on capital. We believe that fixed income will perform strongly as bond prices increase when interest rates fall and that we should see other defensive sectors outside of Technology to perform strongly such as Healthcare, Utility and Consumer Staple companies. We are particularly cautious on cyclical parts of the market (areas which are highly sensitive to economic conditions) such as Financials (particularly Banks), Miners and Automobile manufacturers.

Rathbones Investment Management

For a complimentary consultation with AI Wealth, simply click the button below and complete our easy "Book a meeting" form. You are under no obligation and there is no charge for an initial conversation.