Quarterly Market Outlook - 1Q 2024

• Global growth is coming off the boil.

Economic growth is now cooling as global monetary tightening gradually takes its toll. U.S. recession risk has diminished, although consumer headwinds are rising. China and Europe are likely to see another year of tepid growth.

• Global disinflation continues unabated.

Price pressures have eased significantly, largely due to resolved supply chains. The last mile of disinflation toward central bank targets may require some economic slowdown and job market weakness.

• A central bank pivot is upon us.

Most central bankers have now adopted a more dovish stance and rate cuts are likely in 2024. Yet, they may come slightly later than markets anticipate and will likely be gradual—unless economic growth surprises to the downside.

• Equities will likely see volatility in H1 followed by a rally in H2 as policy easing arrives.

Falling bond yields have driven a sharp market rally, but this can only be sustained if earnings deliver. An economic slowdown in H1, coupled with slightly later than expected rate cuts, suggest some volatility.

• Fixed income credit spreads are very tight going into an economic slowdown.

• Rate cuts failing to materialize may drive extended U.S. Treasury disappointment in 1Q. Higher-quality credit should perform better than lower-quality credit as the economy slows, and as the maturity wall becomes more pressing.

• Alternatives provide important diversification against traditional equities and fixed income.

Commodities are facing an unclear near-term future as investors weigh up geopolitical risks versus greater U.S. oil supply. With real bond yields likely having peaked, REITs are facing a much brighter outlook.


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