My first published piece on Nasdaq.com was in June of 2012, which means that I have been contributing here for eleven and a half years. That also means that I have written about what to expect from the new year eleven times. In that time, I have learned a thing or two; most notably that the best long-term predictions start with a “top down” approach. You must first look at the big picture: geopolitics, domestic politics, global growth, and the U.S. economy. After that, you can narrow it down to some sectors to consider, and only then should one start looking for individual names and considering their performance over the past year or so.
With all that in mind, where does that leave us for 2024?
Geopolitically, the world is a mess, with four major conflicts or flashpoints already threatening stability as we start the year: The Russian invasion of Ukraine is ongoing, as is Israel’s response to terrorist attacks by Hamas. Neither of those wars looks likely to end soon and, while they have so far remained contained, there is always a chance of escalation when weapons are being fired. In fact, it could be argued that the third flashpoint, the situation with the Houthi rebels in the Red Sea, is already an escalation of the Gaza situation. The rebels are financed by Iran, who has responded to the U.S. sinking of vessels over the weekend by sending a warship to the area. Increased activity by the Houthi at a time when Israeli forces are fighting in the Gaza Strip cannot be a coincidence.
Then there is the upcoming election in Taiwan. China has warned that they will respond with force should the Taiwanese people elect a leader who is pro-Taiwanese independence, as looks extremely likely at this point. Given the history of this conflict, there seems to be little chance of a military response from China, but any response at all through things like stepped up cyber-attacks and saber rattling “military exercises” in the area will increase tension with the U.S., who are allied with Taiwan.
The cynic in me cannot help but wonder if all of this aggression is related to the fact that this is a Presidential election year in America. The country is bitterly divided, with Republicans believing that Joe Biden is weak and too inept to protect American interests, and Democrats believing that Donald Trump is too corrupt and too enamored with the world’s autocratic leaders to do the same. The point I am not making here is that one side or the other has it right; I am simply pointing out that the division emboldens other countries, particularly America’s enemies. We are a nation divided, focused on our internal squabbles, and that signals weakness to the rest of the world.
Global and domestic politics are obviously not in a good place going into 2024, but economically, things are looking up. The rate hike cycle around the world seems to be over and the market is pricing in six or seven cuts here in the U.S. starting as early as March. That may be a bit overly optimistic, but it has come about because there is evidence that inflation is coming under control without any real recessionary pressure.
However, even if the soft landing is a reality and there are some rate cuts this year, businesses will have to adjust to a world with “normalized” interest rates after a decade or so of free money. That may restrict gains in growth-oriented areas of the market like tech. The positives of the AI revolution will offset that to some extent, but tech investing this year is going to be about picking individual winners rather than just buying a sector fund or ETF.
Assuming there are some rate cuts, if not six or seven in rapid succession, the obvious place to look for value going into the new year is in sectors and industries that have been hit by rising rates. In some cases, like utilities and industrials, where interest rates anywhere below current levels will be a boon, a bounce-back, if only as a regression to the mean, can be expected. Investors should exercise caution in other hard-hit industries, though. Commercial real estate, for example, will continue to be negatively impacted by interest rates above zero, and will also continue to be negatively impacted by hybrid and work-from-home arrangements.
Overall, looking forward to 2024, it looks like being a year that favors a more active investing style. There are significant global risks that need to be monitored in a general sense; even when it comes to sectors and individual stock investing, it will be a year of big changes to conditions and prospects. That means that picking stocks right now for holding the entire year is a bit of a fool’s errand and agility will be rewarded more than patience.
I therefore wish you all a happy, healthy, agile, and prosperous new year!
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Martin Tillier
Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.
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