The Cambridge Weekly – 18th December 2023

The Cambridge Weekly – 18th December 2023

Central bank elves boost 2023 Santa rally

This edition of the Cambridge Weekly presents our outlook for 2024, which we compiled over the past two weeks. Inevitably, much of what we write depends on the starting point and this past week has moved that starting point markedly. This doesn’t make writing the outlook any easier, but at least the timing of publication means we do not need to revise our outlook already.

Looking back to a year ago, the introduction article to our 2023 outlook was titled: ‘Central bank scrooges cancel Santa rally’. One year can be a long time, and this year provided a very welcome Santa rally to end it.
This means that globally invested, diversified investment portfolios, like the ones we manage for clients, should have once again, by and large, outperformed prevailing cash rates and consumer price inflation. Higher risk, equity focused portfolios in some instances should have returned even twice that.

Outlook 2024

Heading into 2024, capital markets are in what feels like a contradictory position. Global growth has been slow (and in some places negative) for some time, while central banks have raised interest rates at the
fastest pace in a generation. But despite all those challenges, equities have had a good year overall. With inflation finally falling, central banks are now loosening their vice grips, and bond markets are predicting a slew of rate cuts from the major players starting as early as March. That has pushed risk valuations in favour of equities and, perhaps more importantly over the long term, has even bolstered growth expectations.

Regions 2024

In contrast to 2023, the US economy might not be as strong as its global peers in 2024. Partly, this is about starting points; the US has grown more quickly than the rest, but that growth did not spread outwards in
2023. Next year could see US demand providing more external support. In addition, we think that past strength is likely to keep the Fed relatively less accommodative than other central banks (despite investors perceiving a dovish shift in the Fed’s policy following the December 2023 meeting). This could mean underperformance in US markets relative to Europe or even Emerging Markets. Currency volatility may result, perhaps continuing the recent trend of dollar weakness, which is again generally a growth positive for the global economy.