‘Uncertainty’ was the byword of the 2023 markets. Will 2024 be the same way?

“Uncertainty” was a big watchword for financial markets last year as inflation heated up and the Fed hiked rates to try and cool things down. In the end, though, 2023 closed out pretty well for investors. 

The S&P came near an all-time high. It was up 24% on the year. The Dow was up more than 13%, and the Nasdaq had its best showing since 2020, up more than 43%. 

So what’s in store for 2024? 

Looking beyond the day-to-day, investors seem to be preparing for a return to calmer, less volatile seas. The markets are now pricing in Fed rate cuts — probably sometime in the spring — as inflation continues to moderate. 

But at the same time, risks continue to abound — from geopolitics to presidential politics. 

When investment analysts were asked today about the prospects for U.S. financial markets in 2024, their answers ranged from unbridled bullishness to cautious bearishness.

But there was agreement that in the short run, the end-of-2023-rally still has room to run.

“Given the fact that the economy continues to perform well, corporate earnings performing well, coupled with the fact that the Fed is done hiking rates — that all lifts the market,” said Oren Klachkin, a financial-market economist at Nationwide.  

The most optimistic forecast came from Jay Hatfield, CEO of Infrastructure Capital Advisors:

“We are about as bullish as you can get about ’24. We have a target on the S&P, about a 15% return,” he said.

Hatfield sees little risk of inflation resurging, or a recession hitting this year.

The market rally may have staying power in part because of how broad it’s been, says Quincy Krosby, chief global strategist at LPL Financial.

“This was not just about the Magnificent 7 — the big, big tech names. The Russell 2000 began to participate in the rally — those are the small and mid-caps,” she said.

But Krosby says investors are still worried about recession: 

“Concerned that perhaps the so-called soft landing will not be as soft as the consensus is right now,” she said.

Oren Klachkin at Nationwide is still predicting a mild recession, and a downturn in stocks mid-year. 

And he sees plenty of other risks: wars in Europe and the Middle East, tensions between China and its neighbors, and threats to global shipping, to name a few.

“The attacks in the Red Sea: If supply chain stress increases again, inflation might be higher,” he said.

There’s geopolitics, and there’s also domestic politics, says Quincy Krosby. 

“For the market another issue are the primaries. We are now in the election season,” she said.

Krosby says the market hates uncertainty. And heading into November, there could be a lot of that.