Welcome to the first edition of our Stock Market Trends and Updates for 2024, where we delve into the latest financial developments and explore the dynamic interplay between market stability and financial uncertainties. 

A quick glance in the rearview mirror to 2023 reveals diminished investor concerns over increasing interest rates, decelerating economic growth, and elevated inflation levels. A surge in investor enthusiasm for artificial intelligence technology played a pivotal role in propelling the Nasdaq Composite to one of its most robust annual total returns since 2009. Notably, technology stocks, growth stocks, and cryptocurrencies emerged as standout performers, reflecting a renewed appetite for risk assets in the market.

Entering 2024, a consistent downward trend in inflation is evident. However, some analysts and economists express apprehension, suggesting that the concluding phase of the Federal Reserve’s efforts to combat inflation may pose greater challenges than anticipated, with the spectre of a potential U.S. recession still looming on the horizon.

Whether you’re new to investing or well-travelled on your financial journey, we aim to provide you with valuable insights and a deeper understanding of the current state of global stock markets. Join us as we unravel the multifaceted elements of the stock market, exploring the latest trends, shifts, and surprises that mark January 2024.

Rate increases are paused 

During the beginning of 2024, inflation and interest rates will likely be Wall Street’s two main concerns. In November of last year, the consumer price index gained 3.1% year-on-year, down from dizzying heights of 9.1% in 2022. Meanwhile, the Fed’s fight against inflation has been assisted by energy prices, which have dropped for nine consecutive months. 

The personal consumption expenditures price index saw a year-over-year increase of 2.6% in November, showing a slight decrease from the 2.9% recorded in October. Meanwhile, the core PCE, the Federal Reserve’s preferred inflation measure, which excludes volatile food and energy prices, rose to 3.2% in November, surpassing the Fed’s long-term target of 2%.

In December, the Federal Open Market Committee (FOMC) once again chose to maintain its fed funds target rate range, holding steady between 5.25% and 5.5%. Having increased interest rates 11 times since March 2022, the FOMC’s most recent rate hike occurred in July 2023, and indications suggest it could be the concluding move in the current cycle.

Despite the FOMC officials downplaying the likelihood of an imminent rate cut, the bond market reflects a notable sentiment shift. According to CME Group, there is an 87.1% probability that the FOMC will implement a rate cut of at least 25 basis points (bps) by its March meeting.

[H2 HEADING] Lingering risk of recession

The upcoming months are crucial for both the Federal Reserve and the economy. Although inflation is on a steady downward trend, concerns persist among analysts and economists, who fear it might prove more resilient than the market anticipates.

While the Federal Reserve has raised interest rates aggressively without triggering a recession, the impact on U.S. corporations is evident, leading to a rise in debt costs. Corporate default rates in the U.S. and Europe increased throughout 2023, with credit ratings agency Fitch projecting a continued upward trajectory in 2024. Despite a year-end stock market rally, the New York Fed’s recession probability model still indicates a 51.8% chance of a U.S. recession within the next 12 months.

Recently, the Federal Reserve adjusted its 2024 economic growth expectations, lowering the forecast for U.S. GDP growth from 1.5% to 1.4%. Additionally, the FOMC foresees a 2024 U.S. unemployment rate of 4.1%, up from the November reported 3.7%.

While the labour market exhibited resilience in 2023, adding 199,000 jobs in November, exceeding estimates, investors appear to anticipate an exceptionally aggressive Fed in 2024.

Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance, suggests that while 2023 focused on the resilient consumer and recession anticipation, 2024 will centre around inflation returning to target sustainably or potentially remaining elevated, compelling the Fed to cut rates less than expected or not at all.

Although the market currently prices in six rate cuts in 2024, Zaccarelli views this number as potentially high, emphasising the importance of closely monitoring inflation trends to align expectations between the stock market and the Fed Funds market.

Geopolitical concerns 

The stock market continues to be influenced by prolonged geopolitical tensions, with numerous ongoing global conflicts contributing to an overarching sense of unease. 

Of particular interest is the Israel-Palestine conflict, which isn’t showing signs of coming to an end anytime soon. Factors ranging from indivisible objectives, security, third-party interventions, extreme actions, and lobbyists present significant obstacles to achieving a resolution and further cause unrest and uncertainty. 

Meanwhile, Chinese diplomat Liu Jianchao commits to fostering stronger U.S.-China ties through “Track 1.5 diplomacy,” emphasising stability and sustainability. Leading a delegation to the U.S., Liu, the head of the Communist Party’s International Department, is the highest-ranking official to visit since the November meeting between Xi Jinping and Joe Biden. 

Liu highlights the leaders’ consensus and urges practical trade and economic cooperation. The “Track 1.5 dialogue” at the Asia Society aims to enhance communication and cooperation, addressing obstacles in bilateral relations. Liu’s visit coincides with Taiwan’s upcoming elections. In discussions with Ian Bremmer of Eurasia Group, Liu stresses China and the U.S.’s shared responsibility for global peace and prosperity, advocating for strengthened mutual trust and cooperation. 

Liu plans to meet Biden administration officials to implement the leaders’ agreement and discuss the Korean peninsula. Concurrently, Shanghai Communist Party boss Chen Jining met with a U.S. delegation led by Lawrence Summers, calling for a new vision in building five pillars of China-U.S. relations, with a view to enhancing people-to-people and academic exchanges.

Final thoughts 

As we navigate the complexities of the global stock market in January 2024, it’s clear that investors are facing a landscape marked by heightened uncertainties yet tinged with hope. However, the evolving nature of the markets, driven by factors such as interest rates, economic growth, and inflation, sets the tone for potentially turbulent times ahead.

We are reminded to remain vigilant as we move through this month.  As reported on MarketWatch, unpredictability rears its head once more. S&P 500 futures drop as a recent warning by Samsung dilutes technology stocks, while record U.S. oil production flares a market share battle with Saudi Arabia and OPEC+ . 

While the markets may experience sharp swings and uncertainties, it’s essential to remember that these dynamics are inherent to the investment landscape. Staying well-informed, maintaining a diversified portfolio, and adopting a long-term perspective can help investors weather the storm and seize opportunities that arise during these challenging times.

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