J.P. Morgan Asset Management - Investment Outlook 2024

Macro overview

It is extraordinary how the market narrative swung over the course of 2023. Coming into the year the predominant view was that we were stuck in the grips of 1970s-style stagflation. With central banks slamming on the brakes it is no wonder so many, ourselves included, expected a recession. That is usually what happens when interest rates rise so sharply.

However, economies have so far coped remarkably well with higher rates. Coupled with signs that pandemic-related inflation is easing, the market narrative has shifted towards the prospect of a soft landing. Bond markets are excited about rate cuts, spreads are at or below historical averages in most areas of credit, and equity analysts are forecasting double-digit earnings growth for 2024. 
 

In brief:

• As we head into 2024, a combination of solid activity and falling inflation has seen the market narrative increasingly shift towards the prospects of a soft landing.
• We are a little more sceptical. Even though Western economies may be less rate sensitive than in the past, we expect that the “long and variable lags” of monetary policy transmission are at least part of the better explanation for the economic resilience seen so far.
• We think it's too early for the central banks to declare outright victory over inflation, and anticipate that rate cuts in 2024 are unlikely to pre-empt economic weakness.
• We therefore think interest rates could be set to fall later than the market currently expects, but eventually they may also fall further than predicted.
• We believe investors should focus on locking in yields currently on offer in the bond market. Targeted alternatives could augment the role that bonds play as diversifiers against different risks. In equities, potential pressure on margins warrants a focus on quality and income.

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Important Information:

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.