Heading into 2023, the consensus of forecasters called for a recession and puny stock market results in the face of substantial headwinds from higher interest rates. Boy was that wrong. In fact, the economy grew around 2.5%, the S&P 500 gained 24%, and the tech-laden NASDAQ Composite soared by 43%, driven largely by the hype around artificial intelligence.
Given how amiss the conventional wisdom proved to be, prognosticators are considerably more circumspect and their forecasts more diverse entering 2024. Individual investors, on the other hand, enter the year more bullish than any time since early 2021, an often-reliable contrary indicator. Either way, investors should take time to review and adjust their portfolios to prepare for whatever is in store this year. Here are a few of the themes that may influence the markets.
› Slowing economy. Consumers continued their post-Covid revenge spending in 2023, but for many, the well is running dry with mounting credit card balances, depleted savings, and the resumption of student loan payments. Consumers account for over 2/3 of GDP, so any weakening in spending will create a drag.
Business investment is also expected to remain sluggish as tighter financial conditions cause companies to delay expansion plans. The end of pandemic era supply chain disruptions will soon reveal whether the massive investment in warehouses and logistics since 2020 have created excess supply, while nearly $1.5 trillion in commercial real estate mortgage debt comes due over the next 3 years, including an ample stock of office properties with high vacancy rates.
Wall Street economists expect real GDP to expand by 1% to 1.5% in 2024, but most believe that the risk is to the downside, and many are still allowing for a 50/50 chance of a mild recession.