2024 Market Prediction

Bearish Midterm and Volatile Times Ahead?

Equity markets may face turbulence in the first half of 2024, potentially remaining flat or declining. Small-cap stocks might offer some glimmer of hope in the second half, but caution is key. While a big swing for profits during market dips might be tempting, prioritize cash until clear opportunities emerge.

According to John Handcock Investment Management websites: 

“This has been one of the longest late-cycle periods in history with the yield curve being inverted and Leading Economic Indicators being negative on a year-over-year basis for roughly a year and a half without a recession. The questions we have to grapple with are classic: Is this time different? Will economic cycles rhyme with those in the past? In our view, this late-cycle period has simply been extended due to the massive pandemic-era fiscal stimulus of 2020/2021. As that stimulus finally becomes depleted—and as the lagged impact of Fed tightening starts to bite—we see a contraction unfolding into 2024. It’s hard to imagine that this time will be different with the Fed flipping from the easiest monetary policy to the most restrictive in a matter of years.

Considering this view, we expect bonds to play an increasingly important role in portfolios and we would continue to lean into higher-quality parts of the equity markets. Meanwhile, we would de-emphasize highly cyclical and unprofitable businesses, which are more likely to feel the impact of a decelerating growth environment and a higher cost of capital. Over the course of the year, we may see a valuation rerating and we’ll be looking to get our shopping list out. Volatility often creates opportunity, and if equity markets see downside moves in the face of a correction, the math may once again look compelling.”

Overall, John Hancock Investment Management (JHIM) warns of a potential recession in 2024. They cite reasons like diminishing pandemic stimulus and the Federal Reserve's tightening monetary policy. JHIM recommends tilting portfolios towards bonds and higher-quality equities while avoiding cyclical and unprofitable businesses vulnerable to a slower growth environment and higher borrowing costs. They foresee a potential valuation re-rating later in the year, opening up buying opportunities.

While JHIM's outlook paints a potentially grim picture, I believe the recession might be delayed until 2025. The roughly $9 trillion in stimulus money, coupled with the sharp transition from low to high interest rates, could extend the lag effect of rate hikes to 36 months – three times the usual 12-month timeline. This extended lag could push the economic downturn into the next year.

Stay tuned for further updates and analysis as the economic landscape unfolds.