Global equities are poised for a significant rally in the coming year, as central banks consider easing monetary policy and the Federal Reserve aims for a soft landing. According to HSBC, the global equity markets are expected to climb higher, with a projected 15% upside by the end of 2024. While economic growth is slowing and interest rates are declining, HSBC believes market breadth will narrow, and US supremacy will likely continue.
In previous instances where the Federal Reserve has successfully engineered a soft landing, the S&P 500 has experienced an average rally of 22% between the pause in rate hikes and six months after the bank began cutting. This historical data suggests that if the Federal Reserve manages to achieve a smooth transition, it could provide a significant boost to global equity markets.
HSBC’s Alastair Pinder emphasizes that the recent pullback in equities has led to better pricing of risks, making technology and consumer discretionary sectors particularly attractive. These sectors are expected to benefit from the broader market rally, with potential for substantial gains. Investors should consider positioning themselves accordingly to take advantage of this favorable outlook.
Chicago Federal Reserve President Austan Goolsbee points out that a soft landing is still a possibility as the central bank navigates the delicate balance of combating inflation without significantly impacting the economy. This unique moment presents the opportunity for inflation to decline rapidly, potentially avoiding a recession. Goolsbee believes that the current drop in price pressures could mark one of the fastest declines in inflation in the last century.
Amidst the promising outlook for global equities, U.S. crude prices have experienced a sharp decline, dropping nearly 4% to their lowest level since July. This decline can be attributed to weak economic data overshadowing concerns about a potential Israel-Hamas war escalating into a broader regional conflict. China’s unexpected decline in exports during October has contributed to softening global demand, which has further impacted crude prices.
While the early November rally has sparked optimism for global equities, Wolfe Research strategist Rob Ginsberg warns that previous trading patterns indicate a potential stall in the near future. Each rally since the peak in July has ultimately rolled over, failing to make a fresh one-month high before reaching a new one-month low. This continuous downtrend raises concerns about the sustainability of the current rally.
Despite the challenges posed by slowing economic growth and declining interest rates, the global equity markets offer substantial upside potential in 2024. If central banks follow through with easing monetary policy and the Federal Reserve achieves a soft landing, investors can expect a considerable rally. Sectors such as technology and consumer discretionary hold promise, as recent pullbacks have led to better risk pricing. While uncertainties surrounding crude prices and potential market stall exist, careful positioning and evaluation of market trends can help investors make the most of this promising outlook.