Webinar: Uncertain 3 Months, But Bullish Equities 2024

Bottom Line: Provided that the U.S. avoids a temporary default and reaches a debt ceiling agreement, then the key focus for asset allocation over the next 1½ years will switch back to growth/inflation and central bank policy prospects. DM inflation will likely come down further, which will allow Fed and ECB rate cuts in 2024. Concerns over economic stagnation/mild recession will also swing to recovery hopes in 2024. The combination of these issues will likely drive less yield curve inversion in DM government bond markets and a swing back to positive yield curves.

Market Implications: The swing towards 2024 economic recovery, plus a peak in the policy cycle, will likely power a rotation towards equity markets (Figure 1).Long-dated government bond yields will likely only see small positive returns as starting yields are partially offset by capital losses. Scope exists for 4700 on the S&P500 by end 2024, with some outperformance by UK/Japan equities but EZ equities performing in line with the U.S. In EM, we prefer China (cheap valuations/reasonable growth and a pro-growth policy from President Xi) and Brazil (rate cutting cycle and too much pessimism on fiscal policy currently discounted). These markets can outperform DM equity markets.