Reasons To Be Optimistic About The Markets In 2024
A year ago, I wrote on the topics below with the same optimism I’ve written about in this article. Suffice to say, it seems I was a little early in my optimism for 2023! To be honest, everything we thought would play out, did play out, it just went a little slower than expected. These key factors have certainly now done their job, or close to it, which I am glad to say, is great news!
As 2023 played out, the global economic outlook remained uncertain, with concerns about inflation, interest rates, and geopolitical tensions lingering. However, amidst these challenges, there are also reasons to be optimistic about the markets in 2024. In this article, we will explore several key factors that could support market growth in the coming year.
Unless there is some sort of ‘black swan event’ (an unpredictable major event that has catastrophic impacts on the markets in quick succession), you could say that the ‘planets have aligned’ for 2024 and I will explain why.
New Zealand Property Market Poised for Recovery
The New Zealand property market has experienced a period of turbulence in recent years, driven by factors such as rising interest rates and tighter lending restrictions. However, there are signs that the market is stabilizing and preparing for a rebound in 2024. In fact, in Auckland and Canterbury there has been month-on-month growth reported for about the past four months.
It’s only a matter of time before this trickles out everywhere into the land of the long white cloud. Also, experts have reminded us recently that we are officially well and truly beyond the bottom of the market (something that applies to pretty much all growth markets/asset classes).
Key Driver
One of the key drivers of this recovery is expected to be an increase in demand from the record-breaking net migration that we are seeing. As of the year ending September 2023, New Zealand’s population grew by nearly 119,000.
Where are all these new people going to live?
The supply of new homes is likely to remain constrained, supporting prices. The construction sector continues to face challenges due to labour shortages and supply chain disruptions, limiting the number of new homes coming onto the market. This imbalance between supply and demand is expected to persist in 2024, putting upward pressure on property prices. We need more houses. We don’t and won’t have them. Prices go up. Simple.
Inflationary Pressures Easing
Inflation has been a major concern for investors and policymakers alike, as it erodes the purchasing power of money and can lead to economic instability. However, there are indications that inflationary pressures are beginning to ease, both in New Zealand and globally.
Reserve Bank
In New Zealand, the Reserve Bank has taken decisive action to curb inflation by raising interest rates. While these rate hikes have initially dampened economic activity, they are expected to bring inflation under control in the medium term. Additionally, the global supply chain is gradually normalizing, reducing inflationary pressures from supply disruptions.
The United States, the world’s largest economy, is also showing signs of moderating inflation. The Federal Reserve has embarked on a similar path of interest rate hikes, and recent data suggests that inflation is beginning to trend down. The US is very close to it’s 2% target. This easing of inflationary pressures is expected to have a positive impact on global markets, including New Zealand.
Easing Interest Rates Provide Relief
As inflationary pressures subside, central banks are likely to pivot from their tightening stance and begin lowering interest rates. This would provide much-needed relief to borrowers and businesses, stimulating economic growth and boosting investor sentiment.
The timing of this interest rate pivot will vary across different countries, but there is a general expectation that rates will begin to ease in 2024. This easing of monetary policy is expected to have a positive impact on asset prices, including equities, bonds, crypto, and property.
We all would certainly love our debt to be cheaper and whilst the Reserve Bank have indicated they could hold rates until 2025, I think they will come down in 2024. Bring that on!
US Election: A Potential Catalyst for Market Growth
The 2024 US presidential election could also act as a catalyst for market growth. Politicians are often motivated to implement policies that boost economic activity and improve public sentiment, particularly during election years. ‘Buying votes’ in other words.
As a result, there is a possibility that the US government could implement measures such as tax cuts, infrastructure spending, or increased social spending in the lead-up to the 2024 election. These measures would stimulate economic growth and boost investor confidence, leading to positive market performance.
Quantitative Easing: Potential for Additional Stimulus
In addition to fiscal stimulus, there is also the possibility of further quantitative easing (QE) from the US Federal Reserve. QE involves the central bank purchasing large amounts of government bonds, thereby injecting liquidity into the financial system.
While QE is not currently on the table, it could become a tool of choice for the Fed if the economy weakens significantly or if inflation remains stubbornly high. A resumption of QE would provide further support to asset prices, particularly in the equity and bond markets.
Money Printer
There was a phrase that became very popular when Central Banks the world over flooded their economies with money when covid hit: “Money printer go brrrrrr”…..
What that saying was describing was the sound of money being “bazooka’d” into the economy (quantitative easing). It is fully expected that the US Federal Reserve will ‘pivot’ on its high-interest rate position soon. They have done their job in getting inflation down as it is very close to their 2% target. The US government debt is costing them a fortune in interest repayments, so they will be keen to see rates drop as soon as possible. It’s a balancing act, but the current level is not only hurting households but the government too.
Once that money printer is turned back on, money flows back into the economy. A rising tide floats all ships, so expect the share markets and crypto markets to go up. In fact, they have already started to do just that as the market forward-looks what it believes is very soon on the horizon.
A Brighter Outlook for 2024
While the global economic outlook remains uncertain, there are several reasons to be optimistic about the markets in 2024.
Easing inflationary pressures, potential interest rate cuts, and the US election cycle could all provide tailwinds for asset prices.
Investors who remain patient and disciplined are likely to be rewarded in the years to come.
So, yes, whilst I was optimistic a year ago – I really am optimistic now. All of the macro signs are pointing to positive things coming in 2024 and beyond.
I believe this will impact those who hold property, shares, and crypto. As mentioned, we are already seeing a rise in NZ property, the share markets, and the crypto markets.
Keep the faith!
Daniel Carney- Financial Advise
Goodlife Financial Advice