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The Investment Playbook for 2024: Visualized

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This visual is part of our 2024 Global Forecast Series. For full access to the series, learn more here.

2024 Investing Playbook

How Are Top Investment Banks Investing in 2024?

As investors look ahead to next year’s global economic environment of higher interest rates and heightened geopolitical fragmentation, growth concerns and unexpected volatility present new challenges.

With many top banks advising on putting capital to work while urging caution and active management of portfolios for 2024, which investment strategies and assets are they looking at for the upcoming year?

This graphic compiles insights from the 2024 investment outlooks of various major institutions like Goldman Sachs, J.P. Morgan, UBS, and more into a single investing playbook for next year. From their core defensive holdings to the more aggressive investing themes they’re eyeing, here’s what many of the top banking institutions agree on for next year.

This visual is from our forthcoming 2024 Global Forecast Series Report:

Global Forecast Series 2024

You can reserve full access to the forthcoming series, which compiles insights from 500+ expert predictions for what will happen in 2024, by becoming a VC+ member today.

Deploy Capital But Stick to Quality Bonds and Stocks

Investing capital in 2024 presents its challenges and risks, however, many top investment banks are in consensus that the new macroeconomic environment of higher interest rates and unsettled inflation (which could surge again) renders holding cash equally risky.

Many outlooks suggest going back to basics for deploying cash into core holdings: high quality bonds to lock in elevated yields and recession-resilient equities with strong balance sheets.

“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.”
UBS

With interest rates likely at their peak as cuts forecasted by many (including the Federal Reserve) for 2024, real and nominal bond yields offer security with attractive income prospects.

Institutions like BlackRock and Bank of America highlight the opportunity found in inflation-linked bonds like Treasury Inflation-Protected Securities (TIPS), which offer decent income at around 2% across various durations while also insulating against the potential for sticky or surging inflation.

“Earning a positive, substantial yield after inflation on U.S. government-guaranteed securities is a welcome relief for savers after years of financial repression.”
Bank of America

When it comes to equities, many institutions are favoring large-caps with strong balance sheets that can withstand a possible contraction in earnings should a recession materialize.

“We think that in a “higher rates for longer” world, strong balance sheet companies and larger companies probably still have scope to extend their outperformance on average.”
Goldman Sachs

Artificial Intelligence Offers Outsized Opportunity

If there’s one common investment theme many institutions are willing to be aggressive on, it’s the outsized potential opportunity artificial intelligence offers the market.

From the mega-cap AI leaders which defined the past year like Microsoft, Meta, and Alphabet to the underlying hardware and data center providers, the continuous progression of artificial intelligence and its infrastructure offers various investment avenues.

“The most obvious beneficiaries of the generative AI revolution have already seen an expanded growth in their market cap in 2023, but there are potential opportunities as we enter the next stages of buildout.”
Citi

The variety in the supporting layers of AI’s tech stack like cloud and data infrastructure has many favoring the tech sector overall in 2024.

Investors willing to take more risk in search of specific industry exposure can look at niches with the highest potential to reap AI’s productivity benefits and downstream effects like fintech, robotics, and cybersecurity.

“We see the tech sector’s earnings resilience persisting and expect it to be major driver of overall U.S. corporate profit growth in 2024.”
BlackRock

Global Diversification Amidst Geopolitical Fragmentation

While the now familiar fractured and increasingly bipolar geopolitical landscape poses plenty of risks next year, many institutions are also identifying the beneficiaries of this changing world order.

“Global diversification may add value to the portfolios as economies diverge and move at their own pace.”
Goldman Sachs

India and Mexico are top picks across many of the outlooks, as both emerging nations have strong long-term supporting catalysts. India’s strong demographics and diversity in sectors offers large growth prospects as Western supply chains and trade potentially continue to shift away from China.

Mexico, on the other hand, looks poised to further benefit from the ongoing trend of U.S. companies near-shoring manufacturing and operations, with the peso having risen 13% YTD in 2023 against the U.S. dollar due to an influx of foreign capital.

“India and Mexico are likely to benefit from a longer-term reorientation of global supply chains and consequent expansion of their domestic manufacturing capacity.”Bank of America

Lastly, both Japan‘s currency and its equities are a common pick for developed market diversification, with various institutions noting its appealing valuations and earnings growth bolstered by fiscal and monetary policy.

“Japanese policymakers have been an outlier among central banks, keeping interest rates low to boost growth.”
Morgan Stanley

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What History Reveals About Interest Rate Cuts

How have previous cycles of interest rate cuts in the U.S. impacted the economy and financial markets?

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Line chart showing the depth and duration of previous cycles of interest rate cuts.

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The following content is sponsored by New York Life Investments

What History Reveals About Interest Rate Cuts

The Federal Reserve has overseen seven cycles of interest rate cuts, averaging 26 months and 6.35 percentage points (ppts) each.

We’ve partnered with New York Life Investments to examine the impact of interest rate cut cycles on the economy and on the performance of financial assets in the U.S. to help keep investors informed. 

A Brief History of Interest Rate Cuts

Interest rates are a powerful tool that the central bank can use to spur economic activity. 

Typically, when the economy experiences a slowdown or a recession, the Federal Reserve will respond by cutting interest rates. As a result, each of the previous seven rate cut cycles—shown in the table below—occurred during or around U.S. recessions, according to data from the Federal Reserve. 

Interest Rate Cut CycleMagnitude (ppts)
July 2019–April 2020-2.4
July 2007–December 2008-5.1
November 2000–July 2003-5.5
May 1989–December 1992-6.9
August 1984–October 1986-5.8
July 1981–February 1983-10.5
July 1974–January 1977-8.3
Average-6.4

Source: Federal Reserve 07/03/2024

Understanding past economic and financial impacts of interest rate cuts can help investors prepare for future monetary policy changes.

The Economic Response: Inflation

During past cycles, data from the Federal Reserve, shows that, on average, the inflation rate continued to decline throughout (-3.4 percentage points), largely due to the lagged effects of a slower economy that normally precedes interest rate declines. 

CycleStart to end change (ppts)End to one year later (ppts)
July 2019–April 2020-1.5+3.8
July 2007–December 2008-2.3+2.6
November 2000–July 2003-1.3+0.9
May 1989–December 1992-2.5-0.2
August 1984–October 1986-2.8+3.1
July 1981–February 1983-7.3+1.1
July 1974–January 1977-6.3+1.6
Average-3.4+1.9

Source: Federal Reserve 07/03/2024. Based on the effective federal funds rate. Calculations are based on the previous four rate cut cycles (2019-2020, 2007-2008, 2000-2003, 1989-1992, 1984-1986, 1981-1983, 1974-1977).

However, inflation played catch-up and rose by +1.9 percentage points one year after the final rate cut. With lower interest rates, consumers were incentivized to spend more and save less, which led to an uptick in the price of goods and services in six of the past seven cycles. 

The Economic Response: Real Consumer Spending Growth

Real consumer spending growth, as measured by the Bureau of Economic Analysis, typically reacted to rate cuts more quickly. 

On average, consumption growth rose slightly during the rate cut periods (+0.3 percentage points) and that increase accelerated one year later (+1.7 percentage points). 

CycleStart to end (ppts)End to one year later (ppts)
July 2019–April 2020-9.6+15.3
July 2007–December 2008-4.6+3.1
November 2000–July 2003+0.8-2.5
May 1989–December 1992+3.0-1.3
August 1984–October 1986+1.6-2.7
July 1981–February 1983+7.2-0.7
July 1974–January 1977+3.9+0.9
Average+0.3+1.7

Source: BEA 07/03/2024. Quarterly data. Consumer spending growth is based on the percent change from the preceding quarter in real personal consumption expenditures, seasonally adjusted at annual rates. Percent changes at annual rates were then used to calculate the change in growth over rate cut cycles. Data from the last full quarter before the date in question was used for calculations. Calculations are based on the previous four rate cut cycles (2019-2020, 2007-2008, 2000-2003, 1989-1992, 1984-1986, 1981-1983, 1974-1977).

The COVID-19 pandemic and the Global Financial Crisis were outliers. Spending continued to fall during the rate cut cycles but picked up one year later.

The Investment Response: Stocks, Bonds, and Real Estate

Historically, the trend in financial asset performance differed between stocks, bonds, and real estate both during and after interest rate declines.

Stocks and real estate posted negative returns during the cutting phases, with stocks taking the bigger hit. Conversely, bonds, a traditional safe haven, gained ground. 

AssetDuring (%)1 Quarter After (%)2 Quarters After (%)4 Quarters After (%)
Stocks-6.0+18.2+19.4+23.9
Bonds+6.3+15.3+15.1+10.9
Real Estate-4.8+25.5+15.6+25.5

Source: Yahoo Finance, Federal Reserve, NAREIT 09/04/2024. The S&P 500 total return index was used to track performance of stocks. The ICE Corporate Bonds total return index was used to track the performance of bonds. The NAREIT All Equity REITs total return index was used to track the performance of real estate. Calculations are based on the previous four rate cut cycles (2019-2020, 2007-2008, 2000-2003, 1989-1992). It is not possible to invest directly in an index. Past performance is not indicative of future results. Index definitions can be found at the end of this piece.

However, in the quarters preceding the last rate cut, all three assets increased in value. One year later, real estate had the highest average performance, followed closely by stocks, with bonds coming in third.

What’s Next for Interest Rates

In March 2024, the Federal Reserve released its Summary of Economic Projections outlining its expectation that U.S. interest rates will fall steadily in 2024 and beyond.

YearRange (%)Median (%)
Current5.25-5.505.375
20244.50-4.754.625
20253.75-4.03.875
20263.00-3.253.125
Longer run2.50-2.752.625

Source: Federal Reserve 20/03/2024

Though the timing of interest rate cuts is uncertain, being armed with the knowledge of their impact on the economy and financial markets can provide valuable insight to investors. 

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