What Will Be on the Financial Markets’ 2024 Menu?

Review the latest Weekly Headings by CIO Larry Adam.

Key Takeaways

  • A U.S. recession will likely be the mildest in history
  • Fed rate cuts are on the horizon in 2024
  • Small caps are a ‘dive’ worth considering

Want to know what’s ‘cooking’ in the financial markets in 2024? Please join us on Monday, January 8 at 4 p.m. ET | 3 p.m. CT | 2 p.m. MT | 1 p.m. PT, as we present our Ten Themes for 2024. Our Ten Themes presentation is a collection of what we deem to be the most critical economic and financial market insights for investors for the upcoming year. After a few surprises (e.g., no recession, 25%+ equity returns, Tech super rally, positive fixed income returns) from last year that ended up being beneficial for investors, we have rolled up our sleeves and whipped up what we believe will be on the financial markets’ menu in 2024. This year, we selected popular television cooking shows and kitchen references as an overriding theme to articulate our views. Here is a quick preview to whet your appetite:

The ‘rotisserie’ economy | The long-awaited recession never materialized in 2023 as the sectors of the economy rotated from hot (i.e., travel and leisure) to cold (i.e., housing) over the last few years. Just like a rotisserie oven turns constantly to keep food cooking at just the right temperature, the economy has been able to avoid getting too chilled all at once – often a recipe for a severe recession. We still expect a recession in 2024, but it will likely be the mildest in history.

Powell is the ‘top chef’ | Powell has served up a restrictive diet of interest rate hikes to bring inflation back under control. But with growth concerns mounting and inflation pressures easing, the Federal Reserve (Fed) can add a little more spice to the menu. Rate cuts are on the horizon, with the Fed likely to deliver three or four cuts in 2024.

Fixed income had a ‘makeover’ | The sharp reset in bond yields has given the fixed income markets the ‘makeover’ it needed. Despite the massive rally in the final months of the year, yields remain near their highest levels in over a decade. With a mild recession on the horizon, the 10-year Treasury yield should settle near 3.5% in 2024. We favor quality over lower rated credits.

U.S. equities require a more discerning eye | After a 25% return for the equity market last year, investors will need to have a discerning eye, like Gordon Ramsay in ‘Hell’s Kitchen’, and be more selective in 2024. With a lot of good news priced into the market (slowing inflation, Fed cuts), earnings will need to grow to propel the markets higher from here. Given our expectation of a mild recession, current consensus EPS estimates of $245 are likely too high. Instead, we think 2% EPS growth to $225 is more likely. History (election year, Fed easing) suggests there is upside to the market, albeit more muted to 4,850 by year-end 2024.