2024 marks my 20th year as a financial adviser at The Spectrum IFA Group and I am lucky to have been invited to every one of our annual conferences since I joined in June 2004. Last week more than 40 members of the Spectrum family got together in the beautiful Hungarian city of Budapest for our latest conference.
The view from the Danube
By Peter Brooke
This article is published on: 4th February 2024
We are always delighted and grateful to welcome excellent external speakers from some of the big investment and insurance firms we work with throughout the year who share their wisdom (and/or best guesses) for the months and years ahead; it was therefore an ideal time for me to pick brains over some goulash and a glass of wine and bring you some considered observations for investing in 2024.
But before looking forward, let’s look at how we got here.
2022 was a very tough year for investors with the hangover from the Covid pandemic and the war in Ukraine creating a perfect inflation storm which led to the most aggressive interest rate hiking cycle in over 40 years. This significantly depressed bond and share values.
Through 2023 there were four distinct periods of rhetoric and market behaviour… it started with the Artificial Intelligence (AI) “revolution” and a huge rally in the “Magnificent 7” stocks in the US, then attention turned to likely recession… but was it going to be a “soft or hard landing” and then a considered period of ‘is this the end of inflation?’ followed by a change in attitudes to try and guess when the first interest rate cuts would start… we even ended the year with a ‘Santa Rally’ in global stock markets…. confusing times!
“Anyone who isn’t confused really doesn’t understand what’s going on!”
- In 2024 nearly half of the global population will be going to the polls; will this influence investments?
- Can we avoid a recession, and if not, what will it look like?
- Will interest rates be cut and if so, what does this mean?
- Is AI really going to change the world?
Most of the investment managers we spoke to last week had the same view on these sorts of questions…
Politics rarely has a material long term effect on investment returns but can create short term uncertainty and opportunities – be active and don’t get caught up in the hype!
Recession
- Soft Landing = inflation comes down and economic growth is moderate – the ‘Goldilocks’ scenario
- Hard Landing = inflation comes down but the economy shrinks – leads to higher unemployment, default on debt and lower consumption
The consensus view is that we will probably avoid a hard recession, especially in the US, which is still the most important economy on the planet. US households still have high levels of savings and long-term debt structures, so aren’t too affected by higher short term interest rates; unemployment remains low and the ‘Inflation Reduction Act’ is still pumping money into the economy.
However, there is a case for a hard landing with some indicators predicting one, but we live in a world of probability and not certainty and this is changing constantly.
“Don’t be too pessimistic but remain cautious … and don’t be too optimistic… anyone still confused?”
We are at the end of the inflation cycle now and so interest rates are likely to start being cut in May (US) and June (Europe). This will be good for bond values, so don’t sell them now.
Artificial Intelligence will destroy some businesses and will make some very profitable. “It’s like internet 2.0”. It is also unlikely to be the companies that ‘started’ the AI revolution which will do best from it… it will be the companies who best embrace it and who create the infrastructure for it, that will profit most.
Demographics – nothing has changed – there are more of us than ever and we are living longer… and the Obesity epidemic is not cured by one or two weight loss drugs, there is a long way to go.
Retreat from globalisation
“Protectionism”/“MAGA”. We are not going back to globalisation and is it a coincidence that geopolitical instability has also increased? The world is a more dangerous place – we must consider greater Geopolitical risk.
So, with all these factors to consider how do we invest for 2024?
Retreat from globalisation = Defence companies and Oil producers, this might not sit well with all investors.
- AI = hardware, chip makers, nano technology, semiconductors
- Demographics = MedTech – improved prevention and treatment efficiency as opposed to just buying more drugs
- Hard Recession = own government bonds! Also own high quality equities – be active
- Soft or No Recession = own equities – but avoid those with high debt – be active
Even with all of the confusing narrative there are some reasons to be positive in 2024:
- Geopolitics will remain the same, protectionism will continue
- Interest rates are moving back to ‘normal’
- Strong labour market
- Housing set for recovery…. Falling interest rates
- Productivity growth from technology and AI – leads to greater profits
- Markets go up 70% of the time
“Look through the hype and stick to your own personal investment commitments and goals … oh… and employ an active manager!!”
I would very much like to thank the investment management teams at RBC Brewin Dolphin, Rathbones Investment Management, Evelyn Partners, New Horizons and The Prudential for their time and expert views on the content in this email.
If you would like to dive deeper into these subjects please check out the following links:
5 Investment themes for 2024: from Evelyn Partners
Some predictions for the year ahead from David Coombs at Rathbones
If you like podcasts then I highly recommend David Coombs amusing and insightful monthly Sharpe End Podcast
Feel free to get in touch if you have any questions via the below channels, or the booking system – always drop me a quick message if you need a time slot outside of those available.
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For now, have a great day, speak soon…