Returns will not come easy in 2024

Investors should expect far more geopolitical tensions in 2024, compared to the start of 2023, but higher volatility will also lead to both greater buying and selling opportunities, providing chances to perform better than what 2024 may actually deliver, according to Morgan Stanley Investment Management.

Additionally, the 2024 events such as the US presidential election combined with China’s stress and de-levering and Europe and the UK entering into a stagflationary environment, will likely add more volatility to the markets.

On the other hand, investors are currently in better shape than last year and the view of the analyst community has shifted from an economic collapse towards finding some middle ground, leading to the narrative for 2024 as a year with easing financial conditions, such as lower bond yields and rising equities.

However, according to the analysts, inflation is likely to keep falling and central banks will be more willing to cut interest rates while global equities may return in the 5-7% area with a soft-landing/no-recession call for next year expected by many investors.

“If all of this turns out to be true, then volatility will fall, carry and income strategies will perform well, as will stocks and bonds. Perhaps it’s time for broad financial asset markets to uniformly perform well and make a comeback? Well as LL Cool J once said, Don’t call it a comeback,” Jim Caron, Chief Investment Officer Portfolio Solutions Morgan Stanley Investment Management, said.

“So as we look for returns in 2024, it won’t come easy in 2024. The path may be very volatile and filled with surprises along the way. This means we are likely to see both great buying and selling opportunities and this may provide chances to perform better than what 2024 may actually deliver.”

According to Caron, investors should establish a baseline view and actively manage a multi-asset portfolio around that view.

“I think it’s very likely that we see a soft landing, which to me includes the possibility of a mild recession,” he added.

“I am still optimistic on the outcome for returns in the year ahead. Investors should start with a well-balanced portfolio and actively manage the risks and opportunities. We have fat tails ahead of us, both up and down, and should play them against the middle for a modestly positive return in 2024.”