2024 outlook: Always better to travel than arrive

2023 was a year of extraordinary influences on the market. Stagflation and artificial intelligence (AI) vied for leadership economically; whilst geopolitics deteriorated further, with the Russia-Ukraine war continuing without end and the current war between Israel and Hamas reigniting the prospect of another Middle-East conflict.

But as we look forward, it is hard not to see the green shoots of economic optimism coming from our teams: our global emerging markets team is singing the Beatles “Here Comes the Sun” while our United Kingdom team is finding inspiration from Ian Drury’s “Reasons to be Cheerful.”

But what is driving this? Clearly the bond markets are signaling not just a peak in interest rates, but a return to normal inflation. So, the conversation has moved to when will the first rate cut happen? We are cautious and intuitively feel that it’s more likely to be in the second half of 2024, but for markets it is always better to travel than arrive. The good news of the rate cut will be discounted long before it happens.

The investment landscape, after this long period of stagflation fear, has exposed large areas of excellent value, notably in the United Kingdom and China. For growth the AI revolution is just in its infancy. All new innovations go through four cycles. The original innovation is met with excitement and objection. This is followed by adoption and regulation. A mature phase of adaptation and application sees the innovation fulfil its promise and more, before, inevitably over time, it retires into obsolescence.

AI is clearly just entering into phase one and we expect the revolution to gather pace.

After everything that has happened this decade, can geopolitics upset markets anymore? After a pandemic, a European invasion and war in the Middle East, what can surprise us? 2024 will be the year of Western elections: both the United States and United Kingdom will have elected new leaders by the end of the year. There will likely be little in the way of new initiatives before then, but much noise. Our view is that the economic policies that a new administration would and can pursue are no different from those currently in power. In Europe, while the European parliamentary elections are not terribly important in their own right, they are an opportunity for electors to protest. We expect a significant shift to the right.

It has already been an eventful decade—2022 and 2023 have delivered exceptionally challenging market conditions. There is a cause for optimism. Recent events have definitely left the world a changed place but with the prospect of rates cuts and more, markets are beginning to look forward again to 2024.