The year is well underway, most people have returned to work or study, and the festive season break has become a fading memory.
We have had the first meeting of the European Central Bank this week and in light of this, we set out our barometers for where we see financial markets in 2024, and what we can expect. More importantly, in this article, we will also present what you can do to manage your finances to remain on track to achieve your objectives in 2024.
As reinforced by the European Central Bank this week, it appears interest rates across Europe, and by extension, the UK and the US, may have peaked. The central banks intend to hold interest rates steady for the foreseeable future, and the expectation is that sometime this year, interest rates may begin to fall.
What this means for you as an investor is to be aware that whatever cash rate you are getting from your bank may be as good as it gets. Expect this to fall through the year. Also, the fixed interest – also called bonds- component of your investment portfolio is expected to have a more optimistic outlook for the next 12 to 18 months as interest rates begin their downward stage of their cycle. Diversified portfolios positioned for your objectives, can take advantage of this.
Closely linked to interest rates, and one of the leading factors in determining official interest rate movements, inflation continues its downward trend from those rapid rises and peaks last year. As inflation slows to what most consider to be long term normal, or acceptable levels, remember that slowing and lower inflation, is still inflation. That means whenever the number is positive prices- and cost of living- are still going up, just not as quickly.
Our financial planning advice is to revisit your household budgets and keep abreast of your cost of living.
The maybe recession
Every month since this time last year, market commentators have debated whether or not the US economy will enter a market slowing recession. At the end of each month they stated, that whilst it had not happened, it could soon. This debate and prognosis (guesswork?) continues. The skeptical observer might comment that if one predicts something every month, they will eventually get it right (but along the way will get it wrong several times). The US may or may not enter into a recession. If it does, markets will slow. Not exciting, not dramatic, just a matter of fact.
In the context of managing your investments, we encourage you to remain focused on your goals and not on whether this will happen. If you sat out of the market last year because of this, you will have missed out on some the recovery and growth. Remain focused on your goals.
Another aspect of 2023 was that most of the returns shown on the US stock market, as illustrated by the S&P 500 was restricted to just 7 companies, dubbed the Magnificent Seven. It wasn’t really an S&P500 return last year, it was an S&P7 return. In 2024, it is expected that returns are to be more broadly seen across the market and sectors, with more companies generating favourable returns.
What does this mean for an investor? Our take from this is two fold:
- Don’t chase last year’s top performers because the top performer one year is rarely the top performer again the following year; and
- A well thought-out strategy that incorporates a consistent and diversified approach will better deliver the returns you need for your objectives.
There are always the ‘unknown unknowns’ as Donald Rumsfeld once famously described what Nassim Nicholas Taleb more articulately calls Black Swans. There are a number of external factors, from geopolitics, to natural events, to technological change, pandemics, social upheavals, and other things, that by definition we don’t know, that can have impacts on markets and your investments. Not all of these are Black Swan events per se.
A Black Swan is something that has a substantial impact, that was not/ could be foreseen, but after the event, many people will say they could see it coming (that is, retrospective predictability). And yes, this is what we are named after, because whilst, by definition we don’t know what or when, we can expect that something will occur that wasn’t foreseen. Therefore, we believe it is prudent to build in contingencies to your financial and investment plans.
Our advice to investors, is to expect that something will occur. Make sure you have resilience in your plans and contingencies for changes to expected variables. Above all, as we have stated above, it is also wise to avoid short term reactionary movements if your goal is long term. Remain focused.
Finally, but importantly, get advice. if you are unsure of your situation, if your plan needs updating, or you don’t have one, or if you just want a second opinion, contact us at Black Swan Capital at [email protected] and we will be very happy to guide you through 2024.