2023 was full of surprises. Last month we took at look at some of the the main events of the year. A US recession that never happened. The Nasdaq-100 up by more than 50%. A former US president who looks like he might make a comeback.
These were all important factors for the global economy. We’ve asked ourselves how they might impact the new year. And please remember, this is not investment advice – always do your own research!
Now, let’s look at what 2024 has in store for us.
No US recession in 2024 – p0.7
Ever since the US yield curve inverted in Q4 of 2022, pundits had been prognosticating an upcoming US recession. We are now in 2024, and there is still no sign of a recession.
On the contrary, the US has continued to clock up robust GDP growth.
It now looks plausible that the US can achieve those rarest of outcomes – a soft landing. The yield curve is still inverted, and other indicators have also been signaling a recession. But the truth is that the US Government has become a lot better at managing the economy – as seen here:
A return to inflation?
Conveniently, inflation back back under control just in time for Christmas!
There could be renewed pressure in 2024. The most recent pressure we’ve seen on supply chains has been the Houthi’s attacks on the Red Sea shipping lanes. But while this adds meaningfully to the cost of bringing freight to Europe, the additional cost to US importers is more modest. Unless the conflict escalates dramatically, this in itself is unlikely to be a major driver of US inflation in 2024.
This should help the incumbent president going into an election year. Whether that is enough remains to be seen.
There will be no global recession in 2024 – p0.9
On a global basis, asset allocators are roughly 50/50% on a Global Recession in the next 12 months.
We think they are being unduly pessimistic.
Barring a major geopolitical meltdown, we see the likelihood of that as being quite slim.
All the global recessions since the 1950’s have coincided with US recessions.
However not all US recessions have led to global recessions.
The two major engines of the global economy are the US and China. China has plenty of internal challenges but is still likely to clock up GDP growth of 4-5% this year.
And despite an increase in bellicose rhetoric over the past few years, the Xi/Biden summit in November signalled a desire from both parties to focus on stabilising the relationship to improve their respective economies.
Barring an outside disruption to the global economy (e.g. a new pandemic), we think the US and China both will keep the global economic locomotive going in the new year.
Trump will be the next US president – p0.6
Given what happened on January 6th 2021, this sounds bonkers. But let’s look at the data.
- Trump is well ahead in the primary polls, and he is the likely Republican nominee. Yes, he has been barred from the primaries in two states, but these decisions are likely to be overturned – especially given the composition of the US Supreme Court.
- Biden’s approval ratings are abysmal. Many of his policy initiatives have been sensible, e.g. the Inflation Reduction Act and the CHIPS Act, but he still has not been forgiven for the inflation that ravaged the US economy during his tenure. Plus he is turning 82 this year, leading to concerns about his health.
- In a Trump vs. Biden match, Trump is now ahead in the polls for most of the key states.
The election isn’t a foregone conclusion. But right now, we think it is pointing Trump’s way.
Despite high valuations, US Stocks will break new records – p0.5
This is the tricky one, and we take this prediction with plenty of caveats!
On one hand, we remain bullish on the fundamentals US economy. Yes – there are debt / credit issues. And the federal deficit is sizeable. But the US’s ability to innovate and build is still unbeaten. On the other hand, US stocks look relatively pricey on most measures. And markets have already started pricing in the coming interest rate cuts, so the upside from rate cuts has, to some extent, been priced in (look at the impressive run of 25% gains in 2023).
So while we think the US stock market looks reasonably fully priced at this point, human exuberace will do what it does best – lean into the good (or absence of bad) news and continue to push the index higher. The finally tally for 2024 might be < 10% upside to the S&P500. But we think there is scope to go higher throughout the year.
So, all fun aside – what will really happen next year?
Whether the above predictions come true or not, some things are for sure: innovators will keep innovating, builders will keep building and we will keep backing great founders to go solve the biggest challenges in B2B tech.
We’ll cover more 2024 predictions on technology and venture here.
Wishing all of you a great start to 2024!