Ten for 2024
Each year, our investment leaders identify 10 key themes that they believe will be prominent in the markets over the next 12 months.
Macro
From Supporting the Consumer to Supporting Industry
1. Growing Challenges for the Consumer
The resilience of the many economies during 2023 owed much to low unemployment and the excess savings that consumers built through the pandemic. Expect a weaker consumer to be at the heart of next year’s economic slowdown.
2. Stickier Inflation and Slower Growth May Not Be So Bad for Investors
Current projections for 2024 suggest the persistence of above-target inflation and higher rates even as real growth declines. But that suggests relatively high nominal growth: tricky for long-dated bonds but more neutral for quality companies with strong balance sheets and the ability to sustain margins.
3. More Fiscal Policy Dispersion (And Debt Sustainability Questions)
After three years of near-universal agreement on deficit spending to protect workers and consumers, debate is likely to open up on the impact of tight monetary policy and expansionary fiscal policy on deficits, and the right balance of entitlement spending, industrial-policy spending, and interest costs.
4. The “Awkward Age” for ESG
ESG and Sustainability will remain confused by differing regional regulatory priorities, but investors on the ground will become clearer on the difference between investing for impact on the one hand, and incorporating ESG factors into investment analysis on the other.
Equities
Exhausted Beta
5. Earnings Quality and Business Resilience Comes to the Fore
Through much of 2023, equity markets were driven by excess liquidity, a “buy the 2023 losers” momentum reversal, and exuberant sentiment around the potential of artificial intelligence. We think above-target inflation, slowing growth and draining liquidity will refocus attention on the quality of earnings and the resilience of business fundamentals to these conditions.
6. Laggards Find (Relative) Favor
Should growth disappoint or the cost of capital continue to rise, we believe markets with a greater degree of pessimism priced in (such as emerging markets, China, growth stocks, financials, small caps) are likely to perform better than those priced for perfection (such as developed markets, India, value stocks, technology, large caps).
Fixed Income
The Long and Grinding Road
7. Supply and Demand Outweighs Fundamentals
Marginal changes in spreads and yields will continue to owe more to supply-and-demand technicals than fundamentals, much like they have in 2023.
8. A Slow Rise in Idiosyncratic Defaults, but Elevated Tail Risk
As higher rates bite, credit defaults are beginning to rise and will be a feature of 2024’s credit landscape. We expect credit stresses to be idiosyncratic: companies with longer-dated fixed-rate debt and high-yielding cash on stronger balance sheets, and the ability to sustain and grow margins, are unlikely to experience substantial spread-widening.
Alternatives
Disruption Brings Opportunity
9. Where Capital Is Constrained, Capital Providers Can Be Rewarded
There is dry powder in private markets, just not in all the right places. Exit bottlenecks have led to a rise in demand for capital, not for new deals, but for secondaries, co-investments, private credit and capital solutions. We think these will continue to be the most attractive corners of private markets through 2024.
10. Real Estate Divides Into the Haves and Have-Nots
Real estate owners and operators face historic increases in the cost of capital and structural changes in demand for various sectors, and we think this will divide owners into the strong and the weak, allowing experienced players with strong performance and robust balance sheets to cement their market leadership.
Roundtable Discussion
Delaying the slowdown is likely to make it milder, but I still think a slowdown is on the way and the weakening consumer will be at the center of it.
Perspectives From Our Investment Leaders
Stickier Inflation and Slower Growth
As 2023 ended, the leaders of our investment platforms gathered to talk about the evolution of the investment environment over the past 12 months and the key themes they anticipate for 2024.
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Thematic Currents
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