Wealth Outlook 2024 - Slow then grow

8 Wealth Outlook 2024 | Our outlook Taking advantage of the markets’ big reset Balanced is best We believe, at this moment, the “balanced” portfolio is poised for stronger performance over the next decade than it has experienced in some time. Our expected returns as reflected in our Strategic Return Estimates (SRE) (see Core portfolios could be ready to shine on page 34 ) have risen meaningfully across all asset classes. Diversified portfolios may also protect portfolios from security concerns and unpredictable election results, two impending risks. Bond yields have tripled from their lows. For example, investment grade corporate debt yields, even those with low durations, sat at 6% as of November 16, 2023. If inflation were to end 2024 at our expected level of 2.5%, real corporate bond yields would be approximately 3.5%. Such high real yields are rare, last seen on a sustained basis in the late 1990s. And the risk of entering new bond positions only to see them eclipsed by even higher-yielding ones is much less at today’s yields than it was just 18 months ago. The evolving macro environment also suggests that equity price appreciation will broaden in the US, then globally. The largest US tech-related shares (the “Magnificent 7”³ ³ The Magnificent Seven stocks: Amazon.com (AMZN), Apple (AAPL), Google parent Alphabet (GOOGL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA). ) have driven the majority of returns in global equities in 2023. For 2024, we expect that profitable small- and mid-cap growth shares with solid balance sheets will see renewed interest. And there are other potential well-valued equity opportunities globally. Understanding US economic resilience After the fastest and largest rate hikes in Fed history, the US economy has been remarkably resilient. There have been several reasons for this. The bulk of the initial recovery from the pandemic was built on fiscal stimulus. During this time, the private sector did not “overbuild.” It “under-hired.” Subsequently, as stimulus was reduced, there was strong pent-up demand, particularly for services labor. While inflation harmed incomes, receding inflation is undoing this harm. Though the recent period of ultra-low interest rates was brief, many households and firms improved their balance sheets through refinancings. The Fed’s powerful about-face that began in March 2022 has had a material impact on inflation. From a peak of 6.6% in June 2022, “core” US inflation (excluding food and energy prices, which tend to be more volatile) as measured by the Consumer Price Index (CPI) has fallen to 4.0% as of October 2023. The remaining lagging element of the CPI, shelter costs, remains elevated, but the October 2023 data suggest that it is also slowing rapidly. Labor demand is cooling now, too, leading to slowing jobs growth and to slightly higher levels of unemployment. However, industries and profits have already felt this slowdown and will not repeat them in 2024. These atypical, asynchronous, and countervailing events have allowed the US to sustain meaningful economic growth. Normalization is the next phase. One likely to lead to stronger growth in 2024 and 2025 along with investment opportunities across many markets.