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Wells Fargo Investment Institute Believes 2024 is a Pivotal Year for the Economy & Markets

Wells Fargo Investment Institute Believes 2024 is a Pivotal Year for the Economy & Markets

With Wells Fargo Investment Institute's (WFII's) release of its "2024 Outlook: A pivotal year for the economy and markets," the team offers its highest conviction ideas for investors to consider in the new year. WFII believes the 2024 economic story could be a tale of two halves for fixed income and equities. The first half will likely be more challenging as WFII expects instability during a moderate global economic slowdown (including in the United States), pivoting into a second half that develops into an improving, more opportunistic environment for investors.

"More long-term opportunities to put money back to work across some markets and regions should come as 2024 develops," said Darrell Cronk, chief investment officer, Wells Fargo Wealth & Investment Management. "WFII's outlook for most of the past two years has been cautious and focused on selectivity and quality, with an eye toward a better year next year. That theme continues in our 2024 Outlook Report."

"The resilient U.S. economy has been supported by consumer spending, a strong labor market and business capital spending," Cronk added. "The journey, however, was more difficult for investors, with the Federal Reserve (Fed) raising interest rates and tightened monetary conditions. Investors following WFII advice during 2023's slow-motion slowdown should be able to use accumulated fixed-income assets to invest later next year."

Once investors begin to look past the economic slowdown to a recovery, WFII expects opportunities in a broad early-cycle global recovery later in 2024. As is often the case, that time will likely come while the economy is still weak, the Fed is cutting interest rates, and markets are beginning to anticipate sustainable economic and earnings growth. Those equity sectors that tie most closely to the economy's cyclical turn higher should benefit the most at that time.

Highlights of WFII's forecast include:

  • Economic crosswinds will net to a moderate U.S. economic slowdown by the early part of 2024, in our view, lowering the full-year U.S. GDP (gross domestic product) target to 0.7% in 2024.
  • The target for inflation in 2024 is 2.5%. Lagging effects to cool inflation in the U.S. will continue to make an impact, but the Fed's 2% target will likely remain out of reach given the competing factors of underlying strength.
  • Once investors begin to anticipate an economic and earnings recovery, WFII expects the S&P 500 Index to gain into year-end. The target range for 2024 is 4,600 – 4,800.
  • WFII's base scenario implies two quarter-point Fed rate cuts in 2024, causing the federal funds rate forecast in 2024 to decline toward 4.75% – 5%.

The full report provides insights about the economy, equities, fixed income, real assets and alternative investments. Also included are economic and market forecasts, where WFII sees opportunity and five portfolio ideas.

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