10 Key Investment Trends for 2024

As we turn the page on an amazing 2023, investors are keenly eyeing the horizon, eager to decipher the forces that will shape their portfolios in the coming year.

The past year tested the mettle of investors with higher interest rates and near-record inflation. Geopolitical tensions flared in the Middle East, adding to the uncertainty caused by the ongoing Russia-Ukraine & Israel-Palestine conflict. The anticipation of a significant presidential election looms large in the United States.

However, amid these challenges, 2023 also witnessed the meteoric rise of Artificial Intelligence (AI), propelling tech giants like Apple, Alphabet, Microsoft, Amazon, Meta, Tesla, and Nvidia to new heights. As we embark on 2024, we bring you a comprehensive look at ten major investment trends poised to define the year.

1. RECESSION: How Bad is the Economic Consensus?

The spectre of a recession has loomed for more than a year. Many analysts, including ourselves, still see the possibility of a mild downturn. Canada might already be inching into a technical recession. However, it's crucial for investors to remember that long-term investment decisions shouldn't hinge solely on the economic consensus. In 2024, we may witness the culmination of monetary policy tightening and a weaker economy. This could be the year when fixed-income investments shine.

Key Takeaway for Investors:

• Don't be swayed by consensus - focus on long-term strategies.

• Consider the potential for fixed income to outperform in 2024.

2. INFLATION: Are Rising Prices Transitory After All?

Inflation dominated headlines in 2023, echoing memories of the 1970s. However, in recent months, rising prices have stabilised, easing some concerns. We anticipate that slowing economic growth will anchor inflation into 2025, potentially benefiting equities and bonds.

Key Takeaway for Investors:

• Monitor economic indicators to gauge the inflation outlook.

• Consider how inflation trends might impact your investment portfolio.

• As Insider Memo premium subscribers, we will do the heavy lifting for you and guide you along your investment journey.

3. FISCAL POLICY: Will Higher Interest Rates Revive Fiscal Hawks?

Higher interest rates and mounting government debt present a conundrum. Net interest outlays in the United States surged past $1 trillion in 2023, while public opinion hints at discontent with current policies. Austerity is unlikely, as history suggests it often leads to recession. Lower interest rates and a tolerance for slightly higher inflation might be the path of least resistance for policymakers.

Key Takeaway for Investors:

• Keep an eye on government debt and interest rate policies.

• Understand the potential impact of fiscal decisions on your investments.

4. MONETARY POLICY: Higher-for-Longer Interest Rates Will Be Tested

As debt burdens rise, economic growth and inflation are cooling. Fixed income markets anticipate higher-for-longer interest rates, but we expect that even a soft landing could bring lower rates, though not necessarily a return to the zero-interest rate policies of the past.

Key Takeaway for Investors:

• Be prepared for potential interest rate fluctuations.

• Diversify your portfolio to mitigate interest rate risks.

5. CORPORATE LEVERAGE: Watch for the Rise of the Zombies

High interest rates spell trouble for European equities and US small caps. However, large US tech firms and select global equities remain less exposed. Understanding the timing and magnitude of rate cuts in 2024 could be crucial for investment performance.

Key Takeaway for Investors:

• Assess the interest rate sensitivity of your investments.

• Diversify across regions and sectors. This is why we have added sector rotation back into our Alpha Portfolio for this year.

6. GEOPOLITICS: Deglobalisation or Regionalisation?

Tensions between the US and China escalated in 2023, and this trend may persist in 2024. However, this isn't necessarily indicative of deglobalisation. 'Near-shoring' or 'friend-shoring' could bolster trade opportunities for US-aligned countries like Canada.

Key Takeaway for Investors:

• Keep geopolitical events in perspective.

• Look for potential trade opportunities in regional shifts. For this, we will get exposure through country-specific ETFs.

7. US POLITICS: US Presidential Election Years Are Usually Good for Stocks

Historically, S&P 500 performance has been robust in years when incumbent presidents seek re-election. Presidents tend to use policy levers to stimulate the economy in election years.

Key Takeaway for Investors:

• Consider the historical context of election years when managing your portfolio.

• Monitor political developments that could impact markets.

8. ARTIFICIAL INTELLIGENCE: Join the Revolution

Tech companies, including the 'Magnificent Seven,' continue to expand their businesses through transformative technologies like AI. Expect AI's influence to extend into various industries, from manufacturing to agriculture.

Key Takeaway for Investors:

• Stay informed about AI-related developments in tech.

• Assess investment opportunities in AI-driven companies. Again, we will find as many potential outliers in the AI sector for asymmetric returns.

9. ALTERNATIVES: The Quest for Diversification Will Accelerate

Retail investors increasingly seek diversification through alternative assets like private equity, private debt, real estate, and infrastructure. Elevated market volatility has reinforced the need for diversified portfolios.

Key Takeaway for Investors:

• Explore alternative investments for diversification.

• Understand the role of alternatives in risk management.

10. REBOOTING THE 60/40 PORTFOLIO: Embrace the Ballast of Higher Interest Rates

The traditional 60% equities/40% bonds portfolio has made a resurgence thanks to higher bond yields. This allocation can provide stability in volatile markets.

Key Takeaway for Investors:

• Reconsider the 60/40 portfolio in your investment strategy. If you are following the Alpha Portfolio then know that protecting our portfolio against downside risk is our top priority.

• Utilise bonds for risk mitigation in your portfolio.

Closing Thoughts

As we enter 2024, we face a financial landscape shaped by past challenges and fresh opportunities.

While the worst of the storm may be behind us, the road ahead is uncertain. Investors should remain nimble, seizing tactical opportunities amidst market fluctuations. Ultimately, understanding these trends and their potential impact on your investments is your compass in navigating the intricate world of finance.

Stay informed, stay vigilant, and stay resilient in your investment journey.