A Maturing Cycle Offers Lots of Risks And Some Opportunities – December 4, 2023

A just-published report examined the outlook for global asset markets for 2024. The recent Goldilocks scenario may prevail in the near term, but the investment landscape is expected to become more difficult as the year and economic cycle progresses.

It is premature to conclude that a bond bull market is underway. Bonds are unwinding oversold conditions and the forward markets are now overly aggressive in forecasting deep Fed rate cuts in the year ahead. We are maintaining our neutral stance on bonds within a multi-asset portfolio on a 6-12 month horizon, but expect another upleg in yields before the cycle ends, while still favoring credit over government paper within a fixed-income portfolio.

While the recent global equity market rebound has been broad-based, it remains unconvincing. U.S. stocks are threatening their cyclical high, but global ex-U.S. stocks are still well below their prior highs. Moreover, even the U.S. market is less perky than the benchmark indicates: although the magnificent seven have had a gangbusters year (up approximately 70% year-to-date), the average stock has largely languished. The latter also holds for the rest of the world. We expect a rotation away from the U.S. (we are modestly underweight) in favor of emerging markets, euro area and Japan within a global equity portfolio.

We are neutral on commodities, with a positive bias toward oil/energy and a negative bias toward gold. Lastly, the U.S. dollar should weaken moderately in 2024, notably against the euro, yen and an EM basket, but will perform better against “weak link” currencies.


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