As we approach 2024, the crystal ball for market predictions is clouded with divergence among investment banks and asset managers. The central question revolves around whether the long-anticipated U.S. recession will materialize, casting uncertainty over the global economic landscape.
This uncertainty starkly contrasts the consensus of a year ago when most forecasts predicted a U.S. recession and subsequent rapid rate cuts, which ultimately did not materialize. The current scenario sees the world’s largest economy expanding by 5.2% in the third quarter of this year, further adding to the complexity of market predictions.
The spectrum of projections encompasses varied expectations for U.S. interest rates and the performance of global assets influenced by the Federal Reserve’s actions. Following a strong rally last month based on the short-term consensus of declining inflation and interest rates, market participants are preparing for a potentially turbulent start to the new year.
Sonja Laud, Chief Investment Officer at Legal & General Investment Management, notes that the narrative is not yet clear, emphasizing the market’s sensitivity to significant shifts in interest rate forecasts, which could trigger substantial volatility.
Economists polled by Reuters predict an average U.S. GDP growth of 1.2% for 2024. While there is agreement that the Fed’s aggressive rate hiking cycle will cause a slowdown, there is divergence on whether 2024 will witness economic contraction prompting rate cuts and a weakened dollar.
Amundi anticipates a U.S. recession in the first half of 2024, signaling a negative stance on the dollar and favoring emerging market assets. In contrast, Morgan Stanley envisions no recession, with expectations that the Fed will maintain high rates well into the next year.
The debate extends to the currency market, where Japan’s yen is predicted to be a “bright spot” as the Bank of Japan moves away from its ultra-easy monetary policy, according to Amundi CIO Vincent Mortier.
In the realm of U.S. stocks, forecasters are divided, with some still adhering to last year’s strong recession consensus, while others see limited recession risk. Equity analysts’ estimates of S&P 500 earnings are currently the most dispersed since the COVID-19 pandemic, indicating the market’s uncertainty.
As the world awaits the unfolding of economic events in 2024, the only certainty is the ongoing divergence of opinions among financial experts, making the future of the market a complex and intricate puzzle.