Wells Fargo says 2024 will be a ‘pivotal year’ for markets and economy

The second half of next year should provide better conditions after challenging first half.

Investors should be ready for a year of two halves in 2024, with a challenging first half followed by rising potential once summer arrives.

That’s the outlook from Wells Fargo Investment Institute released Thursday, which calls for a moderate global economic slowdown in the first six months – including in the U.S., with estimated GDP growth of just 0.7% for the full year – before a pivot into more favorable and opportunistic conditions.

“More long-term opportunities to put money back to work across some markets and regions should come as 2024 develops,” said Darrell Cronk, chief investment officer for Wells Fargo Wealth & Investment Management. “WFII’s outlook for most of the past two years has been cautious and focused on selectivity and quality, with an eye toward a better year next year. That theme continues in our 2024 Outlook Report.”

Inflation should ease in 2024 but the report says that the Fed will not achieve its 2% target in the year but 2.5% looks more achievable. Interest rates should fall with two quarter-point cuts during the year to a 4.75-5% range from the current 5.25-5.5%.

As conditions gradually improve across the second half of the year, investors should become more optimistic about economic and earnings potential, with the S&P 500 gaining to a target range of 4,600-4,800 by year-end.

WFII favors large-cap U.S. stocks over small- and mid-caps, with health care, industrials and materials the preferred sectors, while consumer discretionary and real estate continue with unfavorable ratings.

FIXED INCOME AND ALTS

Meanwhile, further volatility in fixed income should be expected, with U.S. Treasuries struggling in the first half of the year but improving later. In credit, investors should focus on high quality corporate and municipal bonds.

Global alternatives should see positive movement especially in distressed credit strategies (hedge funds and private capital markets) while global macro and relative value strategies could provide portfolio diversity if traditional markets turn volatile.

Overall, the report suggests investors remain defensive but prepared for an early-cycle recovery.