Market Outlook for January 23, 2024

Long-Term Outlook: Bull

The long-term market outlook is bullish. Key drivers of this positive trend include the historical pattern of stocks performing well in presidential election years, with a median gain of 10.7% post-WWII on the S&P 500. The Federal Reserve is expected to cut rates in 2024, barring a surprise increase in inflation, which typically bodes well for stock markets. While economic growth is anticipated to weaken as the cumulative tightening from the Fed continues to affect consumer spending, the overall market sentiment remains positive. Despite risks such as a potential economic “hard landing,” less fiscal spending, and political uncertainty, the strength in company earnings, the Fed’s indication of halting rate hikes, and broader participation in stock market rallies support this bullish outlook??.

Intermediate-Term Outlook: Bear

In the intermediate term, the market outlook is bearish. Avoiding recession has become a consensus, but there are signals of heightened recession risk in 2024. Equity markets are facing challenges with earnings growth not as robust as hoped, and the concentration of equity in tech mega-cap stocks mirrors dynamics seen before previous economic slowdowns. Furthermore, global and U.S. growth is expected to slow by the end of 2024, with liquidity contracting as central banks shrink balance sheets and maintain restrictive borrowing rates. The U.S. and international developed markets face varied challenges, with geopolitical risks and the potential for increased equity volatility. Emerging markets are expected to become more attractive through 2024, but they face initial challenges due to high rates and geopolitical developments????.

Short-Term Outlook: Bear

The short-term outlook remains bearish. Key factors contributing to this include a moderate global GDP growth projection of around 2.8%, below the expected 3.0% advance in 2023. Consumer and business morale appears depressed due to cost fatigue and a prevailing recessionary narrative. Inflation pressures have eased, but the impact of prior years’ inflation continues to weigh on consumer sentiment. The labor market shows mixed signs, with COVID-19-related absences reducing but still higher than pre-pandemic levels, and a possible increase in disability rates. Central banks are expected to pivot away from tightening stances cautiously, with rate cuts unlikely until spring or early summer. Overall, the short-term market environment is characterized by transition and uncertainty, with ongoing challenges in labor markets, fiscal policy, and global geopolitics????.

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