Uncertainty is the watchword in 2024

Learning from the past is important to preparing for the future, so what did 2023 tell us about what to expect in 2024?

First, let’s look back at 2023. Markets and investors braced for the fallout from the Federal Reserve’s aggressive rate hikes, which seemed to play out in March, as three regional banks buckled. But the sturdy labor market reinforced consumer confidence and underpinned steady economic growth, which actually accelerated in the third quarter. Consumers continued spending, helped by falling inflation and lower gasoline prices, which ended the year just below where they started. Corporate profits were likewise resilient, as the inflation boost to revenues wore off as input costs also eased. The S&P 500 index more than made up for its difficult 2022, and bonds posted strong returns. 

So what to expect in 2024? At its December meeting, the Fed clearly opened the door to fed funds rate cuts in 2024. Markets expect more cuts than does the Fed, continuing the push/pull debate that has been going on since the Fed started hiking in March 2022. Inflation may prove to be more sticky than expected, which could slow the pace of rate cuts. Economic growth may slow more than expected under the cumulative weight of the tightening. Because it accounts for more than two-thirds of economic growth, consumer spending will be a key factor to monitor. As long as jobs remain plentiful, consumers should continue to spend. 

Politics will play a large role in 2024. A new and untested speaker of the House of Representatives will have to wrangle government spending bills to passage during a hotly contested election year. Past government shutdowns have cut into consumer confidence; this could accelerate if job losses mount. Always difficult to predict, geopolitical issues may further erode confidence. Markets have been able to block out the two hot wars in Ukraine and Gaza, but if these worsen, or lead to food or commodity supply interruptions, they will be difficult to gloss over. Markets tend to climb a wall of worry, as they did in 2023. It’s possible that 2023 may look like the easy year when we write this next December!