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Chapter 1

The Year Ahead

Discover our scenarios, key questions, and forecasts for 2024, plus take a look back at 2023.

Scenarios

S&P 500: 4,700  |  US 10-year: 3.5%  |  EURUSD: 1.12

We expect both equities and bonds to deliver positive returns in 2024. Slowing US economic growth, falling inflation, and lower interest rate expectations should mean lower yields, supporting bonds and equity valuations, while the absence of a severe US recession should enable companies to continue to grow earnings.

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S&P 500: 5,100  |  US 10-year: 5%  |  EURUSD: 1.18

We expect positive returns for equities and flat returns for bonds. Strong economic growth buoys corporate earnings growth, investor sentiment, and ultimately equity prices. By contrast, resilient growth and persistently above-target inflation keep bond yields elevated or push them even higher, leading to flat bond returns.

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S&P 500: 3,500  |  US 10-year: 2.75%  |  EURUSD: 1.00

We expect equities to deliver negative returns and bonds positive returns. A sharp slowdown in growth—possibly resulting from the cumulative effect of interest rate hikes enacted so far—results in a moderate or severe recession. Grim investor sentiment and sharply lower earnings expectations feed into equity price declines. Bonds fare well as interest rate expectations plummet and investors seek safe havens.

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S&P 500: 3,800  |  US 10-year: 6%  |  EURUSD: 1.10

We expect both equities and bonds to fare poorly. Bond yields continue to rise, potentially due to fears about excess budget deficits, higher energy prices, or a drawn-out period of above-target inflation. Higher bond yields also weigh on equities as higher interest rates pull down estimated fair valuations and as some investors reallocate away from stocks and toward bonds.

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Key questions

  • What’s the outlook for growth?

    We expect the strength of the US economy in 2023 to give way to slower, though still positive, growth 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.

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  • What’s the outlook for rates and yields?

    We expect central banks to commence rate-cutting cycles in 2024. In our view, government bond markets are overpricing the risk that high interest rates will represent the new normal, and we expect yields to fall in 2024.

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  • How will politics shape markets?

    We expect politics to play an outsized role in 2024. The US presidential election, the ongoing Israel-Hamas and Russia-Ukraine wars, and the rivalry between the US and China could all affect markets globally. Investors should prepare for bouts of politically driven volatility and consider hedges.

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Asset class forecasts

Economic forecasts

2023 in review

Growth

We expected economic growth to decelerate in 2023. It did, though not as much as we expected. Developed economies are on track to grow by 1.7% in 2023 versus our initial estimate of 0.4% (and 2.4% in 2022), and emerging economies to grow by 4.3% versus our estimate of 3.5% (and 4.1% in 2022).

Inflation

We thought that 2023 would see inflation fall, and it did, albeit slightly less than we expected. US consumer price inflation looks set to end the year at 3.7%, versus our original expectation of 3.6%.

Rates

We expected central banks to be in a position to cut interest rates by the end of 2023. While they are at, or close to, the end of rate hikes, tighter labor markets have precluded looser policy for now. We now expect the first rate cuts to start in late spring or early summer 2024.

Bonds

Surprisingly resilient economic growth and labor markets allowed bond yields to continue to rise, contrary to our expectations. We thought 10-year US Treasury yields would decline from 3.9% in 2022 to 3% in 2023. They are at 4.6% at the time of writing.

Stocks

We had a neutral stance on equities as we entered 2023. An unexpected AI-fueled rally among a handful of stocks supported broad equity indexes during the year. In the 12 months through this time of writing, the S&P 500 is up 10.5%, Stoxx 600 3.3%, and MSCI Emerging Markets 1.8%.

Currencies

The US dollar is approaching the end of 2023 marginally weaker than it started against the euro, the pound, and the Swiss franc, directionally in line with our forecasts for the full year, but to a smaller degree than envisioned. We did not expect the prolonged weakness of the yen, a result of the Bank of Japan’s continued loose monetary policy.

Commodities

Gold overshot our expectations as investors sought hedges against geopolitical risks despite high interest rates. By contrast, oil prices fell short of our initial expectations, though the efforts by OPEC+ to limit supply allowed prices to almost test the USD 100/bbl mark in the third quarter.

Other chapters

Chapter 2 The Decade Ahead

Dive into the “Five Ds,” scenarios and key questions for the future, and our asset class expectations.

Chapter 3 Top investment ideas

Explore our Messages in Focus to learn about how we think you can add value to your portfolio.

Chapter 4 Getting in balance

Find out how we think investors can protect and grow their wealth for the year and decade ahead.

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This report has been prepared by UBS AG, UBS AG London Branch, UBS Switzerland AG, UBS Financial Services Inc. (UBS FS), UBS AG Singapore Branch, UBS AG Hong Kong Branch, and UBS SuMi TRUST Wealth Management Co., Ltd..

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