2024 Outlook

Going into 2023 we anticipated a recovery year with a 20-30% chance of a recession.  Many considered us too bullish in our 10-12% return projection.  But when the smoke cleared, we were not bullish enough – by half!

So, going into 2024, we are predicting 10 – 12%… again!!!  But for a variety of different reasons.  To make this long explanation shorter, we will list our Top 10 reasons with a brief explanation of each.  So here it goes!

1.Inflation.  Down to 2% by the end of the year – maybe sooner.  May go below 2%!  The shelter component will continue to fall and catch up with the rest of inflation.  Which brings us to #2…

2.Interest Rates.  We are looking for 4 – 5 drops this year.  Good possibility you will see one in March and another one in May.  The Fed will continue to “talk up” rates, but the market is telling a different story.  Believe the market.

3.Labor/Unemployment.  Unemployment has now been below 4% for 25 straight months – the longest since 1969!  Here is the Catch 22, it could go above 4% with a recession, but you can’t have a recession with unemployment below 4%.

4.Economic Growth.  Still at 2% for 2024.  Most indicators are between 1.5 – 2.5%.  Again, how do you have a recession at 2% GDP growth and no economic bubbles that appear to be on the horizon.  Which leads us to #5…

5.Corporate Profits.  Using the S&P 500, corporate profits should be around $225 for 2023, $250 for 2024 and $250 for 2025.  So, looking for 10-12% growth in profits for the next 2 years.  Profit margins continue to grow slightly.  See chart below.

6.Consumer Purchasing Power.  Although Consumer saving has fallen some, and credit card debt has risen, job security and rising wages have made consumers willing to shop.  A rising stock market has also helped.  The net worth of the American households is now $151 Trillion!  $6 Trillion is in money markets.  86 million households own their home with 40% having no mortgages – and those that do, 90% are under 4%.  Which leads us to #7.

7.Market Valuations.  I would be the first one to say the market is getting a little ahead of itself.  Wouldn’t mind seeing a 5 – 7 % correction here (maybe seeing that right now).  Bullish/Bearish sentiment seems to be telling us one is coming.  But in the long run, the wind is at our back.  Low interest rates and high profits are nice winds to have at your back.  And what is going to happen to all this 5% money markets when it drops to below 4?  And everyone is making money elsewhere?  Do you think that could cause another market “melt-up”?

8.Productivity.  Companies are allocating more money to capital spending on technology (both hardware and software) to increasing productivity.  Plus, we are just beginning to see benefits on A.I. – which is going to be bigger than you think.  This is a cycle that will see benefits for years.

9.Low Energy Prices.  Outside of a regional conflict, energy prices should remain stable and historically low.  Natural gas prices have been low for over a year now even with all the exporting.  Plus, the bursting of the China real estate bubble is going to be a big damper on their economy (and energy needs) for years to come.  By the way, China’s problems may be getting even worse – their “one child” policy is coming home to roost.  Their baby boomer population is retiring rapidly with no one left to support it.  They are becoming the world’s largest nursing home.  Not good.

10.Political Uncertainty.  Yes… this is actually good.  Dominance of one party is bad for markets.  And before you say, “your team” is better than “their team,” look at the results – 8 years of Obama the markets averaged slightly over 16%, and the 4 years of Trump – yep, slightly over 16%.

So, we summarize 2024 like this:

2 – 2% Inflation
0 – 0% Chance of recession.
2 – 2% GDP Growth
4 – 4% Unemployment.

But there are always unknown causes.  The “Black Swans” will always be there.  Covid, Ukraine, etc.  We just don’t see them yet.  But the biggest problem we do know is the U.S. debt and the burgeoning interest expense.  It’s really out of hand.  Besides the obvious problems of payment for it, it is also going to be a damper on government spending – a big part of bull markets.  The problem is that it has to be fixed by politicians – God help us!

We are using close to the same asset allocation.  Maybe a bit more bonds and a little less international and emerging markets.  We think the S&P 493 (minus the Magnificent Seven) will “get with the program” and show better results, like they teased us with in November and December.

Finally, the last 2 years have tested one’s patience.  It seems the markets went down on good news and up on bad news.  But it is always rewarding to long-term investors.  Reminds me of a famous Warren Buffet saying, “Uncertainty actually is the friend of the buyer of long-term values.”

Happy New Year!

If you would like to discuss the market and/or your account(s), please do so by contacting me anytime at 832.200.3440 or via email at brian@publicsafetyfg.com.

Brian Craft, AIF
Past performance is not a guarantee of future results. Indices mentioned are unmanaged and cannot be invested into directly. Diversification and asset allocation strategies do not assure profit or protect against loss.  These are the opinions of Brian Craft and not necessarily those of Cambridge. The views expressed herein are for informational/educational purposes only and should not be construed or acted upon as individualized investment advice. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal.

Published January 8, 2024

Author Brian Craft, AIF