Any outlook must start with reflection. Looking back to where we were this time last year when we issued our expectations for 2023, the mood could not have been more different than it is today. A year ago, the world was worried about entrenched inflation, a global recession, and energy crisis in Europe. In 2022, the U.S. equity market had fallen 20%, bonds suffering historic losses, so it was easy to be bearish. In contrast, today we have the S&P and Nasdaq hitting new all-time highs, and consensus feels optimistic about the global economic and market outlook.
As we look to the year ahead, we at J.P. Morgan Private Bank believe the most important dynamic for investors to consider is that the rise in US interest rates is likely over; after 500bps of hikes since March 2022 the ‘’rate re-set’’ is behind us.
After the Rate Reset
History shows us that when a hiking cycle comes to an end, bonds and stocks can do well.
Grace Peters, Global Head of Investment Strategy
We think the opportunity cost of not being invested is becoming clear. On bonds, we advise locking in yields - for today’s high yields may not last for long. On stocks, we expect equities to keep climbing in 2024, making more new highs driven by an earnings recovery that lies ahead.
Why walk out of cash now?
Bonds still have a role to play in portfolios, both as a source of income and protection for downside risks.
Alex Wolf, Head of Investment Strategy for Asia
Our outlook is for the Fed to cut rates by 125bps starting from the middle of the year, bringing the Fed Funds Rate to 4.00% - 4.25% by the end of 2024. We recommend switching out of very long-dated positions and leaning more into high-quality credit with shorter durations, where we see more value in light of still-elevated yields and less volatility.
Why stay positive on equities?
Whilst the S&P500 had a strong 2023, we remain positive in 2024 with a year-end outlook of 4,950-5,050 and would be buying dips.
Cameron Chui, Asia Equity Strategist
We currently expect U.S. earnings to grow between 7-9% in both 2024 and 2025. Our base case assumes a slowing economy that typically favors quality and growth over value. This influences our sector preferences towards Technology, Healthcare, and Consumer Discretionary. Across Asia, our preferred market remains India where we expect mid-teens earnings growth to translate into low-teens equity market returns.
How can FX help your portfolio in 2024?
We believe the next leg down in the dollar will likely only happen after we see clear signs of an economic slowdown in the U.S.
Yuxuan Tang, Global Market Strategist
Economic momentum in the U.S. is still stronger than many other major economies, especially Europe and China. That will likely keep the dollar supported over the next 1-2 quarters. We think there are three things investors can consider in the FX space. First, hedge the currency exposure in your portfolio that is vulnerable to weakness against the dollar and has a carry disadvantage. Second, use FX to lower your borrowing costs. Third, increase your portfolio’s allocation to gold.
How can you build a resilient long-term portfolio?
There are many risks and opportunities to think about for 2024, but investors would do well to look beyond this year and consider whether their portfolios are well-positioned to achieve their long-term goals.
Weiheng Chen, Global Investment Strategist
Clients by-and-large still allocate too much of their assets to cash, and too little to alternatives. Despite its recent popularity with investors, cash will likely struggle to outperform in the long-term. With the reset higher in rates and still-reasonable equity valuations, a classic 60/40 portfolio allocated to equities and bonds remains attractive with an anticipated 7.0% return over the next 10-15 years. A diversified allocation to alternatives to complement traditional portfolios can potentially increase returns while reducing volatility, leading to better portfolio outcomes.
