North River Wealth - 2024 Market Outlook

Predictions are fun, but do not base your views on what everyone else says.

Remember at the beginning of 2023 when all of the talking heads said there was a 100% chance of a recession, inflation was here to stay and the sky was falling? Well, we definitely did not hit a recession as the American consumer remained resilient and artificial intelligence (AI) helped drive the Magnificent Seven stocks (Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA, and Tesla) and the market to near all-time highs. The lessons: Stay invested. Focus on what you can control. Don’t listen to everything you hear on CNBC.

With that said, here are our thoughts (and who knows, maybe a few predictions!) on some hot topics for 2024.

Interest Rates & The Fed

Interest rates can be even more difficult to predict than the stock market, but the outlook for bonds is certainly rosier than it has been in the past few years. Part of the reason the markets reacted so favorably at the end of 2023 was the Fed stopped hiking rates. The rate pause helped drive interest rates lower with bonds having one of their best months on record in November. The question is where do rates go from here? The bond market is betting even lower. At press, the market is pricing in 5 to 7 rate cuts by the Fed in 2024.

Our view: While it seems inevitable that we are at the end of the rate hike cycle, we do not see it at the pace currently reflected in the market. Rate cuts will also influence cash savings yields, driving them lower meaning the short-lived days of 5.5% yielding savings rates are likely behind us as investors look for other avenues to find growth and yield.

Inflation

We don’t ever remember chicken wings being listed like lobster at market price, but here we are. Although inflation has started to wane and gas prices have moderated, it still seems that food and grocery store prices have remained elevated (just ask your neighbor). And that seems to be one of the reasons that people continue to feel the pain of inflation. Prices are not accelerating at the rate we had seen over the past few years, but are still markedly higher which has affected consumers outlook on the economy.

Our view: Inflation is likely to remain slightly elevated in 2024, but slowly inch closer to the Fed’s longer term 2% mandate in the coming years.  

Artificial Intelligence (AI) 

One of the biggest news stories in 2023 was the seemingly overnight adoption of AI. From ChatGPT to search engines to college students writing term papers, AI took its first steps to becoming mainstream. Companies will continue to further develop and enhance capabilities in the new year. We will continue to see new computers, phones and companies add specialized AI components to analyze and improve decision making.

Our view: We are in the first inning of a long game. AI is here to stay. Firms become more specialized and niched as the race for first-mover advantage intensifies. AI remains one of the hottest topics on earnings calls in 2024, but overall market growth broadens outside of the Magnificent Seven.

US Election

Saturday Night Live and cable news ratings rejoice. With the Iowa caucus kicking off the Republican presidential primary on January 15th, there will be no shortage of uncomfortable family discussions in the new year. Are we really setting up for another Biden vs. Trump election? If we have a rematch, this will mark the oldest elected President in our nation’s history. Trump will have to defeat Ron DeSantis, Nikki Haley and Vivek Ramaswamy to secure the Republican nod, while Biden is the de facto candidate for the Democratic Party. The biggest X-factor in the election, however, may be the impact of Robert Kennedy Jr.’s inclusion as an independent candidate. Although his chances to win the election are slim, if he campaigns and debates well, he will undoubtedly steal votes which could significantly shift the results.

Our view: Republicans take over the Presidency and more Hollywood “elites” threaten to leave the country (but don’t).  Perhaps less exciting but more meaningful is what happens in the House and Senate.  We will hold back from making predictions there given close races and many moving parts. 

Commercial Real Estate

This is the one risk in the market that has likely not played itself out yet. Yes, many companies from financial firms to tech companies have mandated a return to office policy for employees, but many corporate office leases are set to expire over the next few years or will need to be refinanced at higher rates which could present some lingering issues in the economy. Retail commercial space (even malls!), however, has seen vacancies decline to near 20-year lows, showing further strength in the US consumer.

Our view: Still too early to tell. If the economy continues to do well, commercial real estate will likely remain a fringe risk. If we head towards recession, companies continue to reduce their physical footprints and consumer spending decreases, this could spell trouble for both banks and real estate companies alike.

The Wrap

2024 is certainly setting up to be an interesting year for investors. Coming out of a strong 4th quarter, investors are feeling more confident on the heels of higher returns and lower bond yields. Remember that predictions are fun, but things change rapidly in the world and markets so it is important to focus on the items you can control.

Cheers to a healthy, safe and prosperous new year and we look forward to hearing from you soon!

Authored by Stephen Blahovec and Michael Rausch of North River Wealth Advisors.  We are an independent, fee-only financial planning and investment management firm located in Pittsburgh, PA servicing clients locally and across the country.  To learn more, contact us here.

This content is developed by North River Wealth Advisors from sources believed to be providing accurate information. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.