Wilsons Advisory expects a favourable global environment for equities next year, particularly in the US.
Despite elevated interest rates and a cooling economy, falling inflation rates and possible rate cuts from the Federal Reserve are expected to create a supportive backdrop for stocks and fixed interest investments.
“Our central case expectation of a further decline in global inflation, slower but still positive growth and the prospect of central bank rate cuts should provide a supportive backdrop for both equities and fixed interest in 2024,” says Wilsons Advisory equity strategist David Cassidy.
The market is anticipating six 25-basis-point cuts in the Fed funds rate, potentially lowering it to 3.75% to 4% from the current 5.25-5.5%.
The 25% rise in the US market this year, supported by high-quality companies, presents attractive medium to longer-term growth prospects, despite high valuations. Cassidy predicts moderate returns in 2024 compared to 2023, with flat US equity multiples.
He says the key risk is a possible deterioration in the global economy and earnings cycle. Yet the US labour market is expected to avoid recessionary decline, maintaining consumer spending through low unemployment and increasing real incomes.
European markets, facing stagnation and recession, may see earlier rate cuts from the European Central Bank, despite its president Christine Lagarde's recent rejection of this possibility.
Emerging markets, despite disappointments, are seen as potential outperformers in 2024, aided by a weakening US dollar and a recovering Chinese economy.
In Australia, the market's performance has been subdued, influenced by its sector composition and uncertainty around inflation and interest rates. The local market's future hinges on inflation trends and a possible RBA easing cycle.
Cassidy remains neutral on the Australian stock market, citing global growth slowdowns and potential constraints on commodity prices. He recommends a partial currency hedge on global equities for Australian investors.