(CRYSTAL BALL GAZING INTO 2024 & REMEMBERING EVENTS IN 2023)
December 20, 2023
Hello everyone,
I wrote recently how most analysts expect the market to continue its rally into 2024. One bank has already raised its stock market forecast for 2024 and is now saying that the S&P500 will rise 8% to 5,100 by year-end. That bank is Goldman Sachs. But it turns out that Goldman is not even the most bullish. Oppenheimer Asset Management chief investment strategist John Stoltzfus has argued that stocks can rally more than 10% to 5,200 next year. His thesis centers around earnings and revenue, which he expects will continue to grow during what he calls a “year of transition” for stocks as the Fed loosens up on interest rates.
We all know that markets don’t move up in a straight line and setbacks are always likely. Those investors with patience and perseverance should see gains over the intermediate and long term.
So, let’s look back on the year that was.
In February, the Chinese spy balloon episode threatened a dangerous escalation in trade and military tension between the world’s two largest economies. By the spring, the collapse of a series of regional American banks, and the demise of Credit Suisse, seemed to have ushered in a tough era of monetary policy – where climbing interest rates were unleashing havoc in the most indebted parts of the conventional and shadow banking systems. At the halfway point in 2023, there was warranted panic over the state of China’s indebted local government authorities and housing sector – that it would require a decisive fiscal response from Beijing’s Communist Party.
As we have witnessed, Beijing has muddled through with piecemeal responses to stimulate its sluggish economy; Europe hasn’t suffered a mass exodus of its industrial base to the US; and the financial system weathered the tremors from the Silicon Valley Bank collapse while withstanding further monetary tightening.
Let’s be optimistic and look at some of the other economic developments worth celebrating at the end of this year.
The US and the UK may get a soft landing in 2024. Consumer prices in the UK have been stubbornly high, but it is finally coming into line.
What is particularly notable is the still-modest number of people who have been made unemployed over the past year. In the UK and the US, higher interest rates are not forcing companies to lay off workers, but instead withdraw the record number of vacancies they had been posting since 2022. This has created a more benign environment where the sharpest edge of monetary policy is hitting unfilled jobs rather than existing ones.
David Zervox at Jefferies argues that these conditions will be enough to lead central banks into “victory cuts” to borrowing costs next year.
Another reason for quiet celebration that is often overlooked is the state of the world’s emerging markets. No debt crisis has arisen in any of the economies—countries such as Brazil, South Africa. Mexico and India have learned from past errors and have built up war chests of foreign reserves to protect themselves from acute debtor distress.
Countries like Peru, Chile, and Romania are among those that began raising interest rates at the first sign of inflation – far ahead of their richer Western counterparts. So, no emerging market debt crisis is to be seen.
The Bank of Japan will likely end seven years of negative interest rates at the start of 2024 with minimal market disruption – a move that seemed unthinkable a few years ago.
Holiday fever and festive cheer are now gripping most of us. Here’s to a great 2024.
Cheers,
Jacquie
