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2024 Annual Predictions

Federal rate cuts, cheaper money, labor markets, college football, the presidential election and other projections from our Investment Committee.

  • Due to the strength of the stock market rally to end 2023, investors start 2024 wondering what equities will do for an encore. Unfortunately, stocks give back some of their gains during the 1st quarter, as large foundations, endowments and fund complexes rebalance their portfolios back to their target allocations.

 

  • After a historic run in terms of absolute and relative performance over the last decade, large cap growth stocks are poised to underperform their value counterparts in 2024. This has more to do with current valuations more than long-term economic growth prospects. Essentially, value stocks have become too cheap to continue to ignore.

 

  • If the futures market is anywhere close to accurate, the Federal Reserve could cut the overnight lending target rate by as many as 150 basis points during 2024.

 

  • If the Fed is as aggressive in cutting the overnight rate as investors believe it will be, the U.S. dollar should fall in value relative to other major trading currencies. This should bode well for commodities’ prices and international investments.

 

  • If past is prologue, and we are supposed to say it isn’t, the anticipated Fed rate cuts should cause the yield curve to steepen and make variable rate debt less expensive. Historically, this has benefitted small and mid-cap stocks, and should do so again in 2024.

 

  • U.S. investors could have a dilemma on their hands in the upcoming year. Would it be better to play the weaker dollar trade by buying commodities, precious metals and materials OR would it be better to buy international investments? Due to continued economic sluggishness in the remainder of the world’s major developed economies, U.S. investors opt slightly more for the former.

 

  • The continued depletion of U.S. munitions stockpiles becomes more serious in the upcoming year. Despite constraints on the Federal budget, the Pentagon has no choice but to ask for and earmark more funds for procurement. The most immediate concern is replenishing ‘’conventional war” material, things like 155mm artillery shells and smaller arms.

 

  • At the start of the year, the presidential candidates for both major political parties seem set. However, after the primaries get underway in earnest, what were thought to be foregone conclusions turn out not to be so. Of particular note, both Nikki Haley and Ron DeSantis make serious dents in Donald Trump’s commanding lead in the polls.

 

  • Although the economy seemed to ignore the inverted yield curve, shrinking money supply, persistently negative leading indicators, housing unaffordability, the higher cost of capital and weaker business sentiment in 2023, these things finally come home to roost at the start of the year.

 

  • The U.S. will likely post weaker Gross Domestic Product (GDP) numbers for both the 1st and 2nd quarters, but they won’t be the worst-case scenarios. Investors can expect roughly 1-1.5% economic growth for the first two quarters, with stronger activity to close the year.

 

  • Belligerents in the “global south,” especially the Middle East, continue to push back against the Western World. Attacks against United States’ military installations and naval vessels persist during the year until the administration has to make a decision. Eliminate the problems at their sources and risk a wider escalation? Or keep on handling the attacks on a piecemeal basis? Unfortunately, the Pentagon will attempt an approach which is neither, to no one’s great satisfaction.

 

  • Cheaper money in the U.S. economy in 2024 should benefit the real estate sector. However, mortgages will still be more expensive than they were a few years ago. As such, the boost probably won’t be as great as your local real estate agent/broker would like. Regardless, the worst is likely over for this economic cycle.

 

  • The U.S. labor markets will remain tight on a relative, historical basis. However, they should weaken from their surprising strength in 2023. The reason is relatively simple. Cheaper money will allow U.S. employers to invest more in technology and systems in order to increase capacity. This reduces the need for additional employees. The change will be extremely gradual, but it will be happening nonetheless.

 

  • In 2024, it becomes increasingly more apparent that reports of the death of the fossil fuel industry in the United States were greatly exaggerated. U.S. automakers are too far behind in the EV race to meet the Administration’s aggressive goals. U.S. consumers don’t want EVs in the quantities which might make them profitable for manufacturers. The necessary infrastructure simply doesn’t exist across the country, and the U.S. has all of this energy already at its disposal.

 

  • As wars continue to wage across the globe, Americans increasingly wonder whether it is in our nation’s best interests to continue to be the world’s policeman. It is extremely expensive. It costs American lives, and there doesn’t seem to be an end in sight. Not surprisingly, the U.S.’s increasing isolationism becomes a major election topic by November.

 

  • Despite adding Shohei Ohtani during the off-season, the LA Dodgers won’t win the World Series.

 

  • No later than halfway through the Fall, college football fans will come to the conclusion they liked their old conference and rivalries better than their new ones.

This content is part of our quarterly outlook and overview. For more of our view on this quarter’s economic overview, inflation, bonds, equities and allocation read our entire Annual 2023 Macro & Market Perspectives.

The opinions expressed within this report are those of the Investment Committee as of the date published. They are subject to change without notice, and do not necessarily reflect the views of Oakworth Capital Bank, its directors, shareholders or employees.