Although 2023 had more than its’ share of ups and downs, it did end up positively in most broad markets. This strength can be attributed primarily to a declining rate of inflation and rising expectations that central banks are at the end of their rate hiking cycles. On the economic front, growth has slowed but there have been positive surprises, especially in the U.S. where the consumer has been stronger than elsewhere. How long this can last is one of the primary concerns heading into 2024.

Our investment strategists believe the risk of a recession is significant, particularly in regions like Canada and Europe where growth figures have been underwhelming. There is a chance the U.S. and other regions avoid a recession, and instead experience a “soft landing”, where growth slows but does not outright decline. In such a scenario, earnings would not decline, but would keep growing, more modestly, and help the equity market generate further gains.

There are a few questions that we believe will have a huge impact in 2024

Will the U.S. head into a recession?

Economically speaking, where the U.S. goes, Canada typically will follow. Although recessions tend to be paired with declining earnings growth and consequently a decline in the stock market, in this case, the current slowdown in GDP has been created deliberately with central banks raising rates to tame inflation making this potential recession perhaps the most anticipated in history. If we know what’s around the corner, the hope is that the Fed and Bank of Canada can reduce rates and pull off a soft landing in the economy.

When will we start to see rate cuts?

This is perhaps the most anticipated question for 2024. Over the past few years we’ve seen a dramatic increase in interest rates in the range of 5% which has a huge impact on consumer spending and economic growth. Ask anyone who has had to renew their mortgage in the past year, higher rates aren’t much fun. The higher rates also have an impact on corporate profitability and consequently economic growth. A decline in rates would be seen as a wind at our back helping consumers, corporations and GDP. The question is, when will we start to see these rates cuts? Consensus seem to say by the end of Q1. If it happens sooner that would be great, if it is pushed back that would create more muted returns for the first half of 2024.

How much cash is too much cash?

Currently there is over $6 trillion of money-market cash sitting on the sidelines. Although most money market funds are yielding 4%+, at some point investors are going to want to start putting this cash to work. If and when this will happen is a great question as it could provide a boost to equity markets.

I’ll be in Toronto for a week this month attending our annual Portfolio Management conference. It is always a great opportunity to hear from some of the brightest minds in the business world. I’ll be sure to post my insights on our blog after the event. If you are interested in our official outlook for the year ahead, please click here for the Global Insight 2024 Outlook.

All the best to you and your families in 2024,

Vince