As we have seen recently, predicting days or weeks in advance has been challenging for global stock markets, never mind 12 months into the future. As we approach the end of the year, often a time for reflection, it’s also a time to look to 2024 and at least be aware of expectations for global stock markets over the next 12 months.
Factors influencing stock markets in 2024
It is fair to say that 2023 has been a challenging year for stock markets, complicated by global conflicts and uncertainty regarding interest rates and inflation. While many of these issues remain, analysts are more upbeat than expected. Let’s look at the issues that will impact global markets in 2024.
Interest rates
Listening to comments from the European, US and UK central banks, you get the impression they want to reduce interest rates, but there is a nagging doubt about whether now is the right time. It feels like we are being prepped for higher interest rates for longer than expected in 2024. However, there is a strong belief that the US Federal Reserve will begin cutting interest rates in the middle of 2024, with other central banks likely to follow.
Indications: Positive for markets, with rates expected to fall
Inflation
In some ways, inflation is set to separate the UK from Europe and the US with very different inflationary pressures. The Bank of England is reluctant to claim victory in the fight against inflation, which is not expected to return to the bank’s 2% target rate until 2025. Just a few days ago, Andrew Bailey, the governor of the Bank of England, warned markets that the relatively sharp drop in inflation over recent months would slow.
There are different challenges in Europe and the US, but inflation is definitely moving in the right direction. Housing costs in the US had been driving inflation, while food inflation was causing concern within Europe. Thankfully, these factors have started to weaken of late.
Indications: Positive signs for the US and Europe, less favourable for the UK
Growth prospects
According to the International Monetary Fund (IMF), we are also starting to see a divergence in economic growth between the UK and the rest of the world. The following table puts this into perspective:-
| Region | 2022 (actual) | 2023 (forecast) | 2024 (forecast) |
| United States | 2.1% | 2.1% | 1.5% |
| Euro Area | 3.3% | 0.7% | 1.2% |
| UK | 4.1% | 0.5% | 0.6% |
| Advanced Economies | 2.6% | 1.5% | 1.4% |
| Emerging Markets | 4.1% | 4.0% | 4.0% |
| Global Output | 3.5% | 3.0% | 2.9% |
On a more positive note, the UK economy will likely avoid a recession, which had already been pencilled in by many analysts earlier in 2023. While there are always downside risks regarding any forecast, at the moment, some observers feel that the UK is under pressure but is also being talked down by analysts and central banks. Is this perhaps a worst-case scenario with potential surprises on the upside in 2024?
Indications: Challenging globally, but the US is outpacing the Euro Area and the UK
Outlook for global stock markets
A recent poll by Reuters unearthed a surprisingly positive consensus amongst analysts. Of the 82 analysts who replied, 46 said they expected stock markets to rise modestly during 2024. A number of them also believe that the major indexes will hit record highs over the next six months, in the expectation of reduced interest rates, only to fall towards the end of 2024. This is set against a year in which corporate earnings are forecast to increase in the first half.
It will be interesting to see if demand for fixed-interest stocks remains strong or if we see a switch to equity markets as and when interest rates eventually start to fall. Taking a broader view, there is a growing opinion that the downside risks to the world economy have reduced significantly in recent weeks. Will this prompt investors to look to the future with a greater degree of confidence?
Summary
It is safe to say that 2023 has been a challenging year for investors, with ongoing uncertainty surrounding conflicts in Ukraine and Israel/Gaza. A surge in demand after the worst of the pandemic exposed weaknesses in the global supply chain, which, together with high energy costs, fed inflation and higher interest rates.
Looking at the FTSE 100 in isolation, as it stands today, it is slightly down on the year to date, encouraging against the challenging economic backdrop. Recent interest rate rises have led to improved returns on cash and fixed-interest investments, but these will diminish as interest rates eventually turn down. As markets tend to look nine-plus months into the future, it will be interesting to see how markets react when the UK economy eventually begins to strengthen.
While the long-term prospects are more optimistic, I appreciate the potential short-term challenges for client finances and investments. Please contact us if you have any questions or queries or want to review your finances in more detail.