What’s the market outlook for 2024?

As the economic and market backdrop continues to shift, Rob Morgan looks at ways to ensure your investments are working as hard as possible.

| 10 min read

The start of 2024 has been kind to investors. Global markets recorded their best first-quarter performance in five years as they looked forward to interest rate cuts later in the year.

2024 stock market outlook

While performance in 2023 was dominated by the “Magnificent Seven” US stocks and excitement around the potential for transformational growth from artificial intelligence, this year has so far seen a broadening in leadership. Previously weaker areas such as smaller companies joined in the rally, which is a sign that the US economy remains strong, particularly with a lift in consumer discretionary stocks resulting from stronger consumer spending. This strength has been helping some other parts of the world, such as Europe and Japan, to generate stronger-than-expected earnings as well.

The economic outlook for 2024 has brightened over the last few months and corporate profits have risen – though risks remain and are starting to loom larger. Geopolitical tensions continue, and ironically the better growth outlook means worries about the persistence of inflation have resurfaced. Despite the previous increases in interest rates, US economic growth and jobs data remain strong, tipping the balance towards fewer interest rate cuts in the coming months.

Earlier in the year, investors were anticipating as many as seven 0.25% rate cuts in the US over 2024 but have now adjusted to around two or three cuts. This is more in line with indications coming from the Federal Reserve (“the Fed”), the US central bank. This change in expectations has seen bond yields rise (meaning prices fell) but had less impact on share markets which continued to benefit from stronger earnings results.

There has also been an upturn in commodity markets, and a further increase in the oil price would certainly complicate the inflation picture. The market response to recent events in the Middle East, with a large Iranian missile strike on Israel, has been measured thus far, and we are wary of making knee-jerk reactions. However, many questions remain open around the longer-term implications for regional stability.

It would be wrong to ignore the potential for an escalation in conflict. Not only would this mean, tragically, further loss of life and terror for people in the regio‑n, but wider global economic ramifications in the form of higher oil and gas prices. The Middle East is a huge energy supplier, and if energy prices were to threaten an increase in inflation, thereby potentially stalling economic growth, then the relatively rosy picture for share markets could easily change.

What will impact markets for the rest of the year?

The key drivers for performance across asset classes over the next quarter and potentially over the rest of the year are likely to focus on three main things: company earnings, expectations for interest rates, and geopolitics.

In respect of company earnings, markets are reflecting optimism towards economic growth and will be highly responsive to company news as the first-quarter earnings reporting season starts in mid-April. There will be winners and losers, as always, but the focus will be on the big technology related names to see if the momentum in profits continues to justify lofty valuations. Elsewhere, expectations tend to be less elevated, so there is perhaps more scope for positive surprise.

There is likely to be more stability in expectations around interest rates cuts as central banks provide more guidance on timing. It is now likely that the European Central Bank and potentially the Bank of England will start cutting rates before the Fed. Higher rates have resulted in greater economic slowdown than in the US where the economy remains strong.

We believe the risks of sticky inflation are higher than the chances of inflation undershooting. If price rises do continue to be stubborn from here it will delay rate cuts, a potential headwind for share markets. Even more so for bonds, although already-high yields stand to cushion investors significantly. Employment numbers will be the key indicator to watch. Even though they are a lagging indicator of the economy they have the most significant impact on overall future momentum.

Turning to the geopolitical side of the equation, gold and oil prices have been increasing because of the escalation of hostilities in the Middle East and Ukraine. This is a risk for markets, with the rising oil price standing in the way of slowing inflation.

Watch: Which investment trends are on the horizon?

How to reduce portfolio risk in uncertain times

Overall, we believe it is a time for sticking to well-established investment principles: Diversifying appropriately and committing for the longer term.

1. Check your portfolio is diversified and balanced

Investors should have a diversified portfolio that insulates them as far as possible from the impact of different economic scenarios, which are particularly wide-ranging. Diversification means spreading money across investments a mixture of asset classes, countries, and investment styles, so not to be overly reliant on certain ones.

The good news for investors is that some of the diversification benefits of the two main asset classes, shares and bonds, have re-established themselves. Bonds stand to benefit if tight economic conditions ultimately result in subsiding inflation and a lower trajectory for interest rates. Meanwhile, equities offer the prospect of better returns from a benign economic scenario and, perhaps whatever the outcome, some exciting longer term structural themes aligned to the digital and green revolutions.

You should be aware that after you buy a selection of investments to fit a certain objective and asset allocation you are happy with, your various holdings will perform differently. If one or a number grow to represent a significantly larger proportion of your portfolio it could lead to a higher level of risk. It can therefore be prudent to bank profits and use the proceeds to top up areas that have underperformed. This can retain the intended balance of your portfolio and helping smooth out returns.

Checking your portfolio periodically can help you focus on any changing circumstances and help ensure you are on course to meet your objectives. It’s also essential to keep tabs your different holdings to ensure they are performing as expected, or whether any improvements could be made.

If you are looking to make this process easier, ‘multi asset’ funds such as our own range can offer a handy way to access a diverse portfolio covering lots of different areas – equities, bonds and other areas – in a single investment. They are monitored and rebalanced by our investment experts.

Read more: How to review your investment portfolio

2. Be an ISA early bird

When you invest your money, it’s vital to make use of tax allowances. Individual Savings Accounts – or ISAs – are often a first port of call owing to their convenience and flexibility.

While many people leave their ISA contributions until the end of the tax year, it is often better to use the allowance early. That way your chosen Stocks & Shares ISA investments are sheltered from tax immediately and have longer to produce income and growth. However, it is also possible it could work against you should they fall in value over the course of the tax year.

For the 2024/25 tax year the ISA allowance is £20,000, but don’t worry if you don’t have a large lump sum to invest right away. With Charles Stanley you can contribute smaller amounts to our Stocks and Shares ISA whenever you like, or set up regular savings from your bank account.

This can also help counter the market ups and downs, as well as take some of the stress out of investing because you are putting money in at different levels. It can even turn market volatility to your advantage as the average prices you pay reduce if prices fall further in the shorter term.

Read more: The benefits of being an ISA early bird

3. Power up your pensions

Pensions are an important consideration for everyone looking to secure a comfortable retirement and a powerful way to invest. When you contribute to your pension, the government adds money. This is called tax relief and it can supercharge your long-term returns.

An investor can receive up to 45% tax relief when they make a contribution to a personal pension such as a SIPP (Self Invested Personal Pension). A top up of 20%, representing basic rate tax relief, is automatically paid into the pension and any higher and additional rate income tax is reclaimable. This can represent a big boost to your money, and an uplift that would otherwise only come with lots of risk or a long time investing in markets.

Read more: What is pension tax relief and how does it work?

4. Take a look at our investment ideas

If you are looking to invest new money or to rebalance your portfolio, and are looking for some fresh inspiration, our Preferred Fund List offers a selection of ideas for the consideration of those who wish to make new cash investments.

Compiled by our experienced Collectives Research Team, the list is designed to provide a helpful shortlist of investment options for those undertaking their own research and seeking ideas for exposure to certain sectors as part of a diversified portfolio. You can filter by each sector, as well as active or passive investment type, and find options for responsible investing.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

Is your portfolio working hard enough for you?

Make sure you're investing with the right level of risk with an Investment Portfolio Review.

See more

More insights

General election 2024 – what could a change of government mean for your money?
By Rob Morgan
Spokesperson & Chief Analyst
28 May 2024 | 9 min read
Markets shrug off general election
By Garry White
Chief Investment Commentator
24 May 2024 | 9 min read
Five tips for investing in gold, silver & other commodities
By Rob Morgan
Spokesperson & Chief Analyst
23 May 2024 | 7 min read
Investing in Japan: what’s the market outlook?
By Rob Morgan
Spokesperson & Chief Analyst
23 May 2024 | 11 min read