2024 Market Outlook: Interest Rates, Inflation, and Economic Growth

The New Year often brings an abundance of opinions on the potential direction of the markets and economy for the coming year.

Here is what we anticipate for 2024 market trends:

Broad Stock Market

Our perspective for much of the year has been that it is a bull market until proven otherwise.

Despite a 10% correction from August through October, stocks have subsequently rallied strongly. The weight of the evidence continues to support this trajectory in the near-term.

Relatively strong company earnings, the Fed’s indication that they are done hiking interest rates, and stronger breadth (broader participation in the rally, especially beyond the mega-cap household tech names), all continue to support the rally.

We are heading into a presidential election year. Historically, this tends to be a strong year for stocks, with a median gain post-WWII of 10.7% on the S&P 500. However, these years tend to be choppy in the first half and stronger toward the end of the year.

The largest risks to the current trend include an economic “hard landing” scenario, less fiscal spending (much of the infrastructure and other government spending has kept the markets and economy going), and political uncertainty.

Stocks tend to perform well after the final Fed rate hike and a soft landing occurs. The tendency for weaker performance around hard landings underscores recession being the biggest risk to the stock market next year.

Additional noteworthy commentary includes:

Fixed Income & Interest Rates

Inflation is slowing, and indicators point toward this trend continuing.

The Fed is most likely finished hiking rates and should be expected to cut rates sometime in 2024, barring a surprise increase in inflation. The pace and degree of rate cuts will depend on the stability of the economy.

If the economy remains stable, rate cuts should be modest. This does not, however, mean that the Fed is likely to reverse policy course from tightening to easing (unless a recession occurs).

Monetary conditions should remain relatively tight (“higher for longer”), barring a recession.

Bonds historically perform very well when the Fed has stopped hiking rates but maintains a tightening bias.

U.S. Economy

Economic growth is expected to weaken in 2024 as the cumulative tightening from the Fed continues to take effect and consumers whittle down their spending firepower.

The degree to which consumer finances are stretched and spending abates is likely the key to whether the economy has a soft landing or a recession.

Lower demand and continued moderation in shelter price growth is likely to help drive inflation toward the Fed’s ultimate 2% target.

How Should Investors Respond?

Instead of trying to predict short-term market moves, research shows that abiding by a disciplined and objective approach helps produce stronger results. We continue to advocate for a well-researched strategy that remains steady through market changes, as we believe it can lead to the best results for investors over time.

Eide Bailly’s unbiased, consistent, and comprehensive wealth management advice is tailored solely to our clients’ objectives and unique circumstances. No matter where you are in the investment lifecycle — we can help.