03 January 2024
With markets finishing 2023 with a flourish, all eyes are now turning to 2024 and what lies ahead. The coming year is expected to be a turbulent one, with more than two billion people going to the polls at some point in 50 countries to vote in national elections.
With the debate around interest rates also now shifting to when we can expect rate cuts and the extent of the global growth slowdown, there are a number of points in the coming year that are likely to impact markets and add to what are already volatile times.
Lindsay James, investment strategist at Quilter Investors, takes a look at the ten events that will dominate headlines in 2024, and what they all might mean for investors.
1. US election
"There has perhaps never been a more consequential and important US presidential election than this one and it tops the list of the events to watch in 2024. The spectre of Donald Trump looms large in this one, and if, as he is expected to do, he runs again the divisiveness in the United States will be ratcheted up another level. Given the events that surrounded his departure in early 2021, it is not hyperbolic to say that US democracy could be put under severe pressure, and markets may not like that outcome."
2. The US economy
"Linked to the election is the US economy, the most important in the world. The incumbent Biden administration is going to do all it can to make people feel better off – particularly in the ‘swing states’ where manufacturing depends on low energy costs and government investment. The Federal Reserve in turn will be keen to appear impartial in the election whilst also no doubt harbouring concerns of what a final Trump administration could mean for bureaucrats, and may act accordingly. Don’t be surprised to see the US economy remain robust as government spending continues its support in 2024."
3. UK election
"The general election in the UK is likely to be held in 2024 and could herald the first change in government since 2010. The Labour party has shifted to the centre ground and readied themselves for power with a costed and detailed industrial strategy that sets them apart from the Corbyn-era. While unlikely to move global financial markets, a change in government will impact UK companies and could see a new wave of investment given prominence in environmental policies from Labour and their attempts to woo business leaders."
4. A new AI boom
"2023 can be summed up as the year of artificial intelligence. What we will likely see in 2024 now is the impact on companies and people as the tech is more intensively integrated. With AI becoming ever more closely integrated with computer software and readily available on our phones, companies already seeing pressures from rising wages and skill shortages will be keen to consider new ways of driving productivity and we may see adoption happen a lot more quickly than expected. We are entering uncharted territory here and regulation is unlikely to keep pace for now."
5. Path of interest rates
"The last two years have seen the most aggressive cycle of interest rate rises in developed markets in history. However, it appears the summit has been reached without any catastrophic economic consequences and now the debate turns to when rates will be cut and by how much this year. Whilst the Fed has signalled three quarter point rate cuts are currently on the cards, the Bank of England and ECB have yet to reveal their hand. History tells us that market performance is often strongest in the early part of the rate cutting cycle, so investors will need to make sure they are ready to participate in any market rally."
6. Recession still a possibility
"The OECD made the point very clearly recently that economic growth is being seriously challenged and, in some regions, grinding to a halt completely. Interest rates and fiscal pressures mean countries may struggle to provide the services they currently do, and that soft landing that was coveted by central banks may quickly turn into a crash landing. Recession has been avoided for now, but how sustainable that is in Europe and the UK remains to be seen."
7. Rebirth of fixed income
"What the rise in interest rates has helped produce is an investing environment where fixed income is once again an investible asset class. We see this story continuing into 2024 as rate cuts start to happen and economic growth continues to be challenged. Bonds are acting as a proper diversifier for investors again, and this will likely only become stronger over the course of the year as volatility strikes."
8. Inflation targets
"The inflation beast may not yet have been slayed, but it has certainly been tamed. Price rises will continue to soften but may not reach the golden 2% target this year. As a result, we expect central banks may begin to entertain the debate around the appropriateness of the 2% target as longer-term, more structural inflationary headwinds continue. We would not be surprised to see at least one central bank look to shift the goalposts and move to more long-term average targets, rather than the nominal 2%."
9. The Olympics
"The biggest sporting event in 2024 is undoubtedly the Summer Olympics being held in Paris. While this will likely provide Europe with a short-term economic boost, attention is likely to be focused firmly on the Middle East and Saudi Arabia. While it has so far signed numerous sporting stars for hundreds of millions of pounds apiece, cutting a swathe through golf and football, it is hoping to continue its rise in economic might and become a major player on the global stage. With the 2034 Football World Cup secured in arguably murky fashion, its use of soft power to advance its economic interests is unmatched in the region and shows no sign of stopping in 2024."
10. Return of Russia
"War and its significant impacts have been a recurring feature in recent years, and it appears 2024 could be one in which Russia fights back again. President Putin will be attempting to out-spend Western democracies in Ukraine, committing 6% of GDP to the 2024 defence budget and push for victory despite Europe’s backing of Ukraine. With a potential Trump administration aligning more closely with Putin, and Ukraine’s funding beginning to hit obstacles, it is not unfeasible that peace talks begin and the end to this war moves into sight. What that means for Europe and the world order is very much up in the air given all the moving parts."
