Following a strong finish to 2023, January proved a more subdued month in markets, as they were forced to reign in their expectations for when interest rates would begin falling.
Month and YTD Market Numbers
January 2024 IMF World Economic Outlook
“The risks to global growth are broadly balanced and a soft landing is a possibility”. So, goes the headline from the latest set of economic forecasts published by the International Monetary Fund on January 30th 2024. Useful to understand what they are saying even if we know that forecasts need to be taken with a grain of salt.
Key points from the report:
- Global growth is projected to be stable at 3.1% in 2024, slightly above previous forecasts due to unexpected resilience in the US and other large economies.
- Inflation is declining more rapidly than anticipated, with expectations for further easing, although risks of persistent underlying inflation could prolong tight monetary policies.
- Policymakers face the challenge of calibrating monetary policies to manage inflation without hindering growth, with a renewed focus on fiscal consolidation and structural reforms.
- Economic recovery varies by region, with low-income economies facing significant challenges due to high borrowing costs and output losses.
- Key risks include potential new commodity price spikes from geopolitical shocks, deepening property sector issues, and the necessity for coordinated global efforts to address climate change and debt resolution.
- The US performed much better than expected in 2023 but is expected to slow in 2024.
- The EU economy is flatlining.
Davos January 2024
The Davos meeting, formally known as the World Economic Forum Annual Meeting, is an annual event where global leaders from government, business, academia, and civil society gather in Davos, Switzerland, to discuss pressing global issues. What did we learn from this year’s meeting? Conversations centred around the critical intersection of economic challenges, technological advancements, and geopolitical dynamics shaping the global landscape. The three most significant points included:
- Global Economic Stability: Discussions on inflation and geopolitical risks highlighted the fragile nature of global economic recovery.
- Technological Innovations and AI: The focus on artificial intelligence underscored its potential to drive future growth but also the need for regulatory frameworks to manage ethical concerns.
- Geopolitical Tensions: The emphasis on areas like the Middle East and China pointed to the complex interplay between politics and the global economy.
2023 In Summary and Consensus 2024 Predictions
The following visualisations are a useful summary of the key events for 2023 and the consensus predictions amongst experts for 2024.
Source: Visual Capitalist
Keeping an Eye on Interest Rates and Inflation
The graph below indicates that central bank policy rates have peaked and the expectation is that they will begin to fall later this year. Meanwhile, investors should keep an eye on inflation, which has fallen rapidly mainly as a result of improvements in supply chains.
Higher Interest Rates Means Better Cash Returns Available for Investors at the Moment
With the rise in interest rates during 2023, investors are now presented with more attractive cash return opportunities through regulated Money Market Funds. These funds aim to align their returns with the Euro Short-Term rate, currently at 3.9%.
Other Stories that Caught the Eye in January
- The rapid development of AI has led to serious concerns over the use of the technology to influence elections through the creation of “deepfake” audio and other files.
- The US Security and Exchange Commission (SEC) approved the first Bitcoin Exchange Traded Funds (ETFs), a boost to cryptocurrency advocates.
- Microsoft overtook Apple as the largest company with a market capitalisation of circa $3 Trillion.
- A Hong Kong court has initiated the liquidation of China Evergrande, marking a significant development in the ongoing China property crisis. The ongoing crisis continues to negatively affect China’s economy.
Our Investment Outlook
Our outlook for 2024 remains cautious. This stance is influenced by several factors:
- Ongoing Geopolitical Risks: These risks are significant and potentially underappreciated by the markets.
- Impact of Higher Rates: There is a concern that higher interest rates could eventually have a detrimental effect on businesses and consumers.
- Mixed Economic Indicators: While indicators present a varied economic landscape, the overall projections suggest a flatlining or further slowdown in 2024.
- Inflation Dynamics: Despite recent improvements in inflation figures, there is always the risk of inflation proving more sticky.
Therefore, market volatility is likely to persist until there is greater clarity on: (a) the resolution or progression of geopolitical risks, (b) a consistent reduction in core inflation to the 2% target, and (c) the extent and duration of economic slowdowns.
Overall, these factors underscore the need for a measured approach to investment in the coming year.
For short-term investors, this remains a market to be avoided, but for our clients who are long-term investors, we continue to advise them to follow their plan and use market weakness to build on positions.
John Tuohy is Chief Executive of Acuvest, an Irish-owned, independent advisory firm specialising in wealth management, pensions, and investment advisory services for individuals, companies, pension schemes, charities, and institutions. John is a Chartered Financial Analyst (CFA) and a Fellow of the Chartered Association of Certified Accountants.