Prepare for continued volatility in 2024, says State Street Global Advisors

Market uncertainty and a fragile US economy among some of the challenges ahead.

A new year tends to bring a wave of optimism, but when it comes to the markets and the economy this should not be overstated according to State Street Global Advisors.

In its 2024 Global Market Outlook, the asset manager sees continued uncertainty and volatility which will require smart thinking and portfolio management from investors and their advisors.

A global recession – and certainly in some key markets such as the U.S. – should be avoided but as tighter monetary policy works its way through the system there could be headwinds. And even without the dreaded R word, growth is set to be subdued.

“With escalating geopolitical tensions, major elections, and monetary policy reaching a critical juncture, the year ahead will be challenging for investors,” said Lori Heinel, global chief investment officer. “2024 will require agility to respond to market signals and multiple factors within the macroeconomic environment. While pockets of opportunity can be found in equities, we consider that fixed income offers better opportunity given current rates and our expected path of growth and future rates.”

The U.S. is likely headed for a soft landing, but the economy will be fragile in 2024. Here more than globally, State Street’s experts believe rates will be cut sooner than expected. But there is always the chance that the Fed and others will stay hawkish.

“Over the past year, global economies have exhibited surprising resilience in the face of the sharpest tightening cycle experienced in decades, with the US economy showing impressive strength. While many regions could be set to benefit from a soft landing, it will depend heavily on central banks’ policies,” said Michael Arone, Chief Investment Strategist for the US SPDR Business.

PORTFOLIO PICKS

When constructing portfolios to navigate 2024’s challenges, State Street believes that fixed income is the best positioned asset class in terms of risk/reward.

Sovereign fixed income may be a good investment in the medium term, while corporate income is set for challenges.

“With rate hikes still filtering through the global economy, we believe an overweight duration position in sovereign debt, namely US Treasuries, will enable investors to price in lower rates and a bullish steepening next year,” said Matt Nest, global head of active fixed income.

There are challenging times ahead for equities and investors will need to be selective with a focus on large cap and quality stocks that display resilient balance sheets, strong market positions, and are well-positioned to capitalize on policy initiatives to boost growth.

The U.S. and Japan are among State Street’s preferences while European stocks are set for headwinds due to the impact of monetary policy.

“A more cautious and price-conscious consumer has negative implications for corporate earnings, so investors need to be especially cognizant of the risks to the asset class from elevated real interest rates, a slowing money supply, and sluggish economic growth expected in 2024,” said Altaf Kassam, EMEA head of investment strategy and research.

For emerging markets, the outlook calls for a nuanced approach where pockets of opportunity clash with vulnerabilities.