5 Factors That Will Affect Your Money Most in 2024
Written by
Yaël Bizouati-Kennedy
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The new year is days away and it’s fair to say that 2023 came with a lot of surprises for Americans which affected their finances. Record high rates, sticky inflation and the resumption of student loan payments, to name a few, have all stretched budgets and taken a toll on savings.
And now, many experts argue that 2024 will make a definitive turn to a more recognizable place.
According to LPL Financial research, the last two years had investors focused on inflation, market volatility and striving for a sense of economic balance. In terms of what’s in store for 2024, LPL Financial expects to see some return to the previous status quo.
“That is, a less-stringent Fed, normalizing inflation, and a slower growth environment,” said Jeffrey Buchbinder, Chief Equity Strategist, LPL Financial, adding that there have been indications of this reset, including receding inflation, rates stabilizing, less equity market volatility and economic forecasts calling for slower growth ahead.
“From our perspective, this turning point for the markets and economic landscape can be characterized as a return to familiar economic and market patterns, leaving behind the volatility of policy and economic swings experienced in recent years, and moving toward a steadier environment,” he added.
Here are the key forecasts for 2024, according to LPL Financial.
Economy
LPL Financial said that in 2024, a recession is likely to emerge as consumers buckle under debt burdens and use up their excess savings. Yet, any recession will likely be mild and a Fed that is sensitive to risk management will likely provide an offset by taking interest rates down.
In terms of inflation, while it still may be a concern, the Fed will likely be less focused on it given the trajectory is going in the right direction.
Finally, LPL’s GDP growth forecast for 2024 is 1% and its CPI forecast is 2.8%.
“We expect the Fed to begin cutting rates next summer as inflation falls further, and to follow that up with two or three more cuts by year end 2024,” Buchbinder said.
Stocks
Stocks are entering a phase in which market participants will be focused on interest-rate stability — as inflation comes down further. Meanwhile, interest rate stabilization should help support stock valuations, said Buchbinder.
“And while rates may be the most impactful driver of stock valuations, corporate profits are moving into a sweet spot,” he said.
In the event of a soft landing, low interest rates and limited economic disruption from geopolitical tensions, we could see the S&P 500 exceed 5,000 in 2024, he added.
“For our asset allocation, we recommend a U.S. and growth-focused portfolio that favors large caps over small caps. Our favorite sectors as 2024 approaches are communication services and energy,” he said.
Geopolitics
With the onset of the war in the Middle East, geopolitical concerns have broadened. Meanwhile, debates persist across NATO about the monetary and political costs associated with supplying Ukraine with military equipment.
“As part of this backdrop, the U.S. has focused on keeping China from acquiring advanced semiconductor technology that can be applied to its expanding military buildup,” Buchbinder said.
Yet, while LPL is not expecting the geopolitical backdrop to get significantly better in 2024, “history tells us that this risk alone is often not enough to derail opportunities in capital markets.”
Alternatives
In 2024, the landscape will be advantageous for strategies that are nimble, can generate excess returns from both top-down macroeconomic forecasts as well as bottom-up fundamental analysis, have limited stock market sensitivity, and benefit from the rise in volatility.
“In our view, this could be an opportunity to own global macro hedge fund strategies as well as select private credit and infrastructure investments, said Buchbinder.
Bonds
Buchbinder explained that as the big moves in yields may have already taken place, bonds offer compelling value in an environment in which rates have likely peaked and inflation is steadily falling.
“In terms of asset allocation, we recommend investors emphasize high-quality, core bonds and limit exposure to plus sectors that carry higher credit risk. One exception is preferred securities which we believe offer good value and attractive yields,” he added.
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