2024 Investment Outlook: Slowing Growth, Sticky Inflation And The “Goldilocks” Scenario

StashAway has recently released their 2024 H1 Macro Outlook. According to this report, market consensus appears to have shifted from expectations of recession to the narrative of a “soft landing”. This is being dubbed a “Goldilocks” scenario, where policymakers are able to rein in inflation and bring growth to a pace that’s neither too hot nor too cold, but just right.

Stephanie Leung, Stashaway CIO said that this scenario is going to be difficult to achieve. She highlighted that the US economy has been much more durable to the impact of rate hikes than expected, largely due to a stronger-than-expected US employment. A more gradual slowdown could possibly occur in 2024 due to higher interest rates.

It is because of this that Leung believes that the outlook for inflation has bigger implications for markets. Things such as supply-side pressures from the labour market and oil prices contribute to inflation risks, which makes a return to the US Federal Reserve’s (the Fed) 2% target a hard sell. Since supply-side drivers of inflation tend to be more persistent, this suggests that investors continue to take a more cautious stance.

A longer-term perspective

According to StashAway, a longer-term view can increase the certainty of returns. When you zoom out, the longer-term returns of equities and bonds become easier to understand. That’s because on a much wider time horizon, they’re driven by fundamentals, and not the latest swings in economic data or market sentiment:

For example, US equities have posted annualised total returns of about 10- 11% since the end of World War II. This has certainly seen some short-term fluctuations based on macroeconomic cycles, however this growth in returns has ultimately been underpinned by the fundamentals of the US economy. 

For fixed income, while the past two years have been a painful period for bonds, StashAway believes that it has also been a great reset for the asset class.

Staying invested for the long term

Overall, macro uncertainty has remained high ever since the COVID-19 emergency. With the US heading into election year in 2024, there will likely be long-term implications on global economics and geopolitics, and any swings here are likely to cause short-term volatility.

Ultimately, StashAway believes that as long as you keep a well-diversified portfolio with allocations that are consistent with your personal risk level, short-term volatility in the markets is just noise; and that staying invested in stocks and bonds through the ups and downs of economic cycles means greater certainty in returns.