Investors were in a rather bullish mood last year. The buzz over generative AI and high expectations for company earnings helped stock prices soar. The belief in a “soft landing” scenario for the global economy, where inflation falls without triggering a significant slowdown, entered the mainstream. Traders also started to price in more interest rate cuts than central bankers were signalling, which meant that even bonds made a comeback. This year, all the optimism will be put to the test.
After nine consecutive weeks of gains, America’s leading stock index, the S&P 500, has started the new year oscillating somewhat sideways. Solid jobs data and a sturdier than expected December inflation reading dimmed hopes for sooner and steeper rate cuts. But then weak producer price data on Friday reversed the mood again. Global equities and bonds have been treading water for the past two weeks too.
Twists and turns will be a feature of financial markets in 2024. Traders have positioned themselves for rosy outcomes, but the economic outlook is fogged by uncertainty and several pivotal geopolitical events. As the reality unfolds, investors will have to constantly recalibrate.