Economic Outlook 2024
2023 in Review:
Reflecting on the broader market trends of 2023, we observed a resilient labour market, continued fiscal support, and growing optimism regarding the mainstream adoption of artificial intelligence, all contributing to the buoyancy of share markets despite increasing interest rates globally.
The latter half of 2023 initially faced headwinds driven by concerns of a prolonged period of elevated interest rates, leading to market selloffs in the third quarter. However, renewed optimism emerged as markets approached all-time highs towards the year-end, fuelled by increasing confidence in the likelihood of a 'soft landing’.
Both domestic and international equities also finished the year on a strong note. Market sentiment was buoyed by expectations of a Federal Reserve rate hike pause and market positioning for potential rate cuts in 2024, particularly benefiting international fixed income. However, uncertainties surrounding the Reserve Bank of Australia's measures to combat inflation led to underperformance in Australian Fixed Income.
Our Thoughts as we move into 2024:
In terms of portfolio positioning, while recognizing the unique needs of each client, we have implemented some tactical asset allocation adjustments where warranted into 2024. In the short term, we are favouring international equities over Australian equities for growth, considering factors such as our tendency to lag global peers and the anticipated downward trajectory of inflation, particularly in the United States. With the US Federal Reserve signalling a potential interest rate cut by June 2024, we anticipate fewer headwinds for the US market.
The significant impact of artificial intelligence on markets over the past year leads us to expect its continued influence, particularly in the US market.
Having previously reduced exposure to bonds, we have spent 2023 recommending re-entry, particularly for our more 'balanced' investors, as bond yields have become more attractive compared to a year ago. This increased yield offers a more appealing risk-free rate of return and serves as an effective strategy for reducing portfolio volatility. This is something we expect to continue throughout 2024.
As always, we emphasize the importance of maintaining a well-diversified portfolio, tuning out external noise where feasible, and adhering to long-term personal goals and investment strategies.
Should you wish to delve deeper into this update and its implications for your portfolio, please do not hesitate to reach out to us.