A new world

First, we expect slower growth for the US economy in 2024 as consumers face mounting headwinds. We expect European growth to remain subdued, and China to enter a “new normal” of lower, but potentially higher-quality, growth. We think this environment speaks in favor of tilting equity allocations toward quality stocks, including in the technology sector, that can deliver earnings growth even against a backdrop of slowing global growth.

Second, we expect central banks to start cutting rates in 2024. In our view, government bond markets are overpricing the risk that high interest rates will represent the new normal, and we also expect yields to fall in 2024. This speaks in favor of limiting cash allocations and locking in yields in quality bonds.

Third, we expect politics to have an outsized role in 2024. The US presidential election, the Israel-Hamas and Russia-Ukraine wars, and the ongoing rivalry between the US and China could all have global market repercussions. And political decisions to engage in large and unfunded fiscal spending create both upside and downside investment risks to base case economic forecasts. Investors should prepare to hedge market risks. We see capital preservation strategies, macro hedge funds, oil, and gold as hedges to focus on in 2024.

As we look to the decade ahead, we expect the effects of AI, China’s maturing economy, the energy transition, and high global debt levels to grow larger still.

We think AI will spur meaningful value creation across a range of sectors. For now, investors have focused on the likely beneficiaries from AI hardware and platforms, but the potential spillover into applications will reach far and wide.

A new normal is coming into view for China. Constraints on old growth models will likely see slower growth than the norm over the past two decades. Investments aligned with the country’s efforts to boost higher value-added manufacturing, drive a green transition, and develop greater self-sufficiency should be best positioned.

Concerns about climate change and national security will drive a global transition toward decarbonization. Achieving a complete transition to a carbon-zero economy is a complex undertaking. But significant investment in decarbonization projects should mean high growth potential for solution providers in the space.

Government investment in technological, environmental, energy, and physical security—as well as aging populations—means debt levels are likely to rise. We believe higher debt levels will contribute to higher volatility in fixed income, but also more opportunities for private investors to supply financing. These trends speak to the importance of building alternative assets into diversified portfolios for investors able to manage the specific risks associated with them.

First, make sure you have a plan. In this new world, data has become more available but not necessarily more informative. The pervasiveness of social media means each data point is amplified more than ever before. The result? The power of stories to influence behavior has grown, information (or disinformation) can impact markets faster than ever, and popular opinion can flip in a matter of days. A clear plan, linking strategies with goals and values, can help investors stay focused on the bigger picture in an increasingly noisy world.

Second, investors should get in balance. In our base case, we expect positive returns for balanced portfolios in 2024, and our scenario analysis suggests that multi-asset diversification should also prove effective at hedging risk scenarios. Over the longer term, we believe that investors who keep a diversified multi-asset portfolio—traditional or sustainable—as a “core” investment strategy are most likely to successfully protect and grow real wealth over time.

Third, stay disciplined yet agile. Discipline is key to successful investing: Given the right “core” strategy, the adage of “time in the market, not timing the market” has held true over time. But equally, markets evolve and investors' needs change. Investors should therefore regularly review their plans for strategic allocations, tactical allocations, and “satellite” investment ideas.

As we enter a new world, it would be easy to feel a sense of trepidation. Yet it’s worth remembering that since 1900, the world has seen two world wars, nine pandemics, hundreds of civil or regional wars, more than 2,000 nuclear detonations, revolutions in both the world’s largest and most populous countries, at least a dozen hyperinflations, over 15 bear markets, over 20 recessions, and almost 200 sovereign defaults or debt crises.

When it comes to investing, all these years of adversity have taught us three things: the value of global diversification, the virtue of patience, and, most important, the resilience and ingenuity of humankind.

We wish you a happy, healthy, and prosperous year ahead.