After the Rate Reset

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 JP 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.

We believe inflation could continue to drift lower to the 2-2.5% range, without needing a recession to reign in prices. That means the Federal Reserve can cut rates, likely from around the middle of 2024.  

History shows us that when a hiking cycle comes to an end, bonds and stocks can do well. Investors have good options to deploy new money; indeed, today’s starting point of higher rates gives investors multiple choices in crafting their financial plans.

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. We expect Artificial intelligence, industrial policy and healthcare themes to dominate globally, helping market breadth to increase from the narrow leadership seen last year.

Finally, in credit, the real economy is still adapting to higher rates and lower credit availability. So, defaults may rise and there could be pockets of stress but overall we believe that stress will likely be limited.

Markets offer a promising and diverse opportunity set, and we hope you enjoy our 2024 outlook.

Let me also take this opportunity to express that we highly value the relationships we have forged with you. We are honoured to stand by your side and your financial partner and thank you for your continued trust and confidence in JP Morgan.

Definitions

S&P Index: The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States.

Nasdaq Index: The Nasdaq Composite Index is a market capitalization-weighted index of more than 2,500 stocks listed on the Nasdaq stock exchange. It is a broad index that is heavily weighted toward the technology sector.