2024 is unlikely to be an easy year on the stock market
Published: Thursday, Dec 21st 2023, 10:51
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The festivities are often followed by a hangover. While the stock markets are currently celebrating the hoped-for turnaround in interest rates, the momentum could soon lose its power. This is because many of the uncertainty factors of 2023 are likely to remain with the markets in 2024.
As is well known, 2023, which is now coming to an end, was full of market-moving surprises: Inflation and the battle between central banks once again proved to be a constant source of unrest, expectations of economic growth were constantly changing and a sudden banking crisis sent shockwaves in the spring. In recent weeks, the fighting in the Gaza Strip has added another source of conflict to the war in Ukraine, which has been ongoing since last year.
Investment experts agree that many of these factors are likely to continue to influence market developments in the coming year. Above all, geopolitical pressures, inflation and interest rates as well as the global economic outlook will once again be among the driving forces. It is also an election year in the USA.
First rays of hope
What's more, in recent weeks, interest rate cut fantasies have driven prices, possibly anticipating much of the impetus for 2024. These are being driven not least by the fact that inflation has now clearly come back from its highs, also thanks to the central banks. Investment expert Thomas Stucki from St. Galler Kantonalbank warns that the battle against inflation has not yet been won. But it seems to be on the right track.
In addition to price trends, economic growth will also play an important role in 2024. Economists repeatedly emphasize that the effects of interest rate hikes will only reach the economy with a time lag. While they are confident that the US economy will have a soft landing, they believe that a less soft landing is inevitable for the eurozone. The reason: Germany, the usual locomotive, is running out of steam. "Things are looking very bad for Germany at the moment," says Christian Gattiker, Head of Research at Julius Baer.
Burden from abroad
This is not good news for export-oriented Switzerland. Accordingly, economic growth in this country is also likely to be affected by the weak partners. The investment experts at Julius Bär, Zürcher Kantonalbank and SGKB are therefore advising caution at the start of the new stock market year.
Philipp Lienhardt, Head of Equity Research at Julius Baer, recommends initially focusing on defensive sectors. Here, the Swiss market could benefit from its less cyclical orientation for once. The expert believes that pharmaceutical stocks in particular are not a bad bet in such an environment. Julius Baer itself also counts two defensive representatives, Sandoz and Nestlé, among its top picks for 2024.
Pictet Asset Management takes a similar view. For investment strategist Anastassios Frangulidis, the Swiss market with its defensive orientation should be a good bet for the first half of the year, which is expected to be more turbulent. According to Frangulidis, less cyclical stocks in particular are among the winners in times of weak global growth and geopolitical uncertainties.
With stocks such as Nestlé or the pharmaceutical heavyweights Roche and Novartis, the Swiss stock market is known to be defensive and less sensitive to the economy. Perhaps this will be an advantage in the new year after it proved to be a drag in the year now drawing to a close. Nestlé and Roche in particular weighed on the SMI with a clearly negative annual performance.
Alternative to shares
Manuel Ferreira, Chief Strategist at ZKB, assesses the situation somewhat differently. He also assumes that the first few months of 2024 will be characterized by an economic slowdown. Accordingly, he expects increased volatility. However, this should be quickly digested, which is why - unlike the other two strategists - he advises gradually shifting the portfolio towards a more cyclical focus and expanding equity positions.
But in his opinion, bonds are also an exciting alternative. "The days when investors had no alternative to equities are over," says Ferreira. "Bonds are yielding positive returns again and their prices will benefit from the economic weakness, the fall in inflation and the neutralizing interest rate cuts."
The investment experts at the financial services provider State Street Global Advisors also believe that "in view of a possible significant slowdown in economic activity and persistent disinflation, fixed-interest securities are one of the best-positioned asset classes from a risk/return perspective". In particular, government bonds such as US Treasuries are an attractive option in the medium term.
©Keystone/SDA
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