YWR: 7 Surprises for 2024

Usual Disclosure: This is market commentary and personal views only. These are not investment recommendations. For that seek professional help.

We are investing on a 5 year view (or longer), but let’s still consider the likely investment surprises for 2024.

First let’s remind ourselves of the big surprise of 2023:

• the Fed did not cut rates. At the beginning of 2023 the implied policy rate was 4.4% by January 2024.

• the economy did not go into a recession

• the NASDAQ went up +40%!!

Doubline Just Markets Presentation from January 2023

So one year later what’s consensus for 2024.

1. The Economy will be weak in 2024 as the delayed effects of rate increases catch up with us. A record low number of investors see a stronger economy in the next 12 months (BofA Fund Manager Survey)

2. There is the distinct possibility of a hard landing in 2024. The Yield Curve is telling us this.

JP Morgan:

1. Higher-for-longer rates & restrictive policy cause something to break before the Fed is willing to cut

2. Recession finally arrives

3. Optimistic equity volatility finally recouples higher to elevated macro uncertainty & still-stressed rates volatility

UBS:

1. Stocks typically drop about 6-7 months before a recession.

2. The range of declines varies from 0 to 15 months before a recession.

3. P/E ratios are currently 2-3 points below their 2022 highs.

4. Given the strong economic backdrop, we anticipate more short-term upside.

5. However, we also anticipate a double-digit drawdown at some point in 2024.

Jeff Gundlach: this is the biggest yield curve inversion EVER! The recession should hit by Q2 2024.

Webcast: The End of Secular Norms

3. Interest rates will definitely go lower!! Highest reading ever in the BofA Investor Survey. So we know that is going to be wrong.

4. Bonds will be the best asset class for 2024. Cash and Commodities will be the worst. Record flows into TLT even though the price is in a downtrend.

Source: Factset and YWR ETF Fund Flow analysis

5. In equities the consensus view is don't be super bearish, but don’t take too much risk. Own defensive sectors like Healthcare and Tech which can work even if the economy gets weaker.

BofA Fund Manager Survey November 2023

6. Don’t own China and don’t own EM (unless it is India). In fact you should probably short China.

BofA Fund Manager Survey

That’s the set-up.

Now what’s going to be the surprise?

Here are 7 surprises for next year.

Spoiler alert: you aren’t taking enough risk, or should I say, you likely aren’t taking the right types of risk.