Wealth Outlook 2024 - Slow then grow

7 Wealth Outlook 2024 | Our outlook Taking advantage of the markets’ big reset What is “Slow then grow”? We have seen three distinct phases of market activity since the start of the pandemic. The first was a period of stimulus-driven euphoria from 2020-2021. During this period, low emergency rates plus broad support for the economy led to excessive and unsustainable market returns. The second phase was a period of bear market caution in 2022-2023. The Fed’s about-face of higher rates and quantitative tightening crushed bonds and equities, but not the economy. Now, we are entering a period of normalization and growth in 2024-2025. We are exiting a period of rolling sector recessions and unusual levels of employment demand to begin a global economic recovery led by the US. Our “Slow then grow” thesis sees a deceleration in economic activity during the early part of 2024, but no synchronized recession, followed by an economic acceleration later in the year. Our global gross domestic product (GDP) estimates for 2024 and 2025 are +2.2% and +2.8%, respectively. How is this possible? Even as the job market cools, we see corporate profits rising from 2023 to 2024 at a 5.0% rate and then at a 7.0% rate from 2024 to 2025. We also expect the US Federal Reserve to lower rates at the short end as it sees employment impacted negatively from the lagged effects of its tightening actions. If unemployment rises more quickly than expected, the Fed will also react faster by lowering rates more quickly. We see inflation running at 2.5% by the end of 2024 and 10-year rates in a range of 3.5% to 4.0% at that time. Following this period of falling inflation and rates, we expect the growth rate of production and capital investment to improve and consumer spending to firm heading into 2025. What is the “big reset”? The “big reset” in financial markets is happening across equity, fixed income and alternative investments. Its simplest explanation is that after a period like 2022 when stock and bond performance is deeply negative, markets tend to first heal and then recover toward historically normal ranges of activity. The big reset is happening without a major recession. For many investors, the absence of a plunge in financial markets in 2023 could be a mixed blessing, failing to provide the “all clear” signal they might prefer to begin investing again. In our view, it would be unfortunate for investors to miss this moment as many asset classes are poised to recover in a fairly synchronous manner, with equity, debt and alternative investments possessing both unique and related reasons for their return to potential solid returns. This is why trying to time markets will be impossible in 2024. It is time, instead, for investors to reset their expectations upward. Investors can potentially benefit from fully invested, broadly diversified portfolios.