Subscribe

US assets set to outperform in 2024, says Morgan Stanley

Stocks and bonds will do better than EM peers but expect a dip first.

Morgan Stanley’s strategists see US stocks and bonds outperforming their emerging markets peers next year, according to a note to clients. 

“We expect US earnings growth to trough in early 2024 and rebound thereafter,” strategists including Serena Tang and Vishwanath Tirupattur wrote. US growth may stay strong relative to other regions, with emerging markets growth likely to disappoint, they said.

Morgan Stanley recommends a “barbell of defensive growth and late-cycle cyclicals” and sees the S&P 500 Index at 4,500 at the end of next year. It closed at 4,415.24 on Friday. It also added that policymakers will need to get the balance correct between “tightening just enough and easing quickly enough.”

The optimistic outlook for next year would mark a turnaround in the bearish view of US stocks as investors fret about the impact of higher-for-longer interest rates. Until recently Morgan Stanley’s Michael Wilson — one of Wall Street’s most prominent bearish voices — maintained the bank’s longstanding target for the S&P 500 at 3,900 for this year-end.

“Unlike the prior two years where we had a strong RoW > US preference, 2024 is different,” the note said about next year’s asset allocations, referring to the US versus the rest of the world. “Risk-off sentiment in first half also drives safe-haven demand for US dollar and US dollar-denominated assets.”

The strategists also see the likelihood of US bonds turning more attractive than a year ago on the back of “easier” policies. Yields may fall through 2024 — with those on the 10-year Treasury reaching 3.95% — as markets price in the start of rate-cut cycles. They forecast the Federal Reserve to make its first rate cut in June. 

Meanwhile, Morgan Stanley is cautious on emerging markets’ fixed income and sees limited prospects for a recovery in EM local bonds without a recovery in Treasuries.

“EM returns look less than compelling across stocks, credit, and local rates,” the strategists wrote. “Geopolitics will weigh on some countries. And the potential for China entering a debt-deflation loop remains a headwind to EM outperformance.”

Related Topics:

Learn more about reprints and licensing for this article.

Recent Articles by Author

Quant King Jim Simons passes away at 86

The former code breaker and mathematician-investor behind the secretive hedge fund Renaissance Technologies leaves behind an indelible legacy.

BofA, Barclays strategists split on muni bond rally odds

Two of the biggest players in the $4T space offered contrasting views on what the summer will bring for investors.

Equities rally continues ahead of Fed speeches

The data suggests cuts but what will Fed officials signal?

UBS mulls bonuses for wealth management referrals

Fees would be paid for bankers introducing wealthy clients.

Bill Ackman confronted at Milken over DEI views

Hedge fund veteran faced his critics at premier business event.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print