Investors are preparing to wrap up a strange year for the stock market. The FTSE 100 reached a record high twice in February yet is perhaps set to end the year flat (at best).
Looking ahead, it’s only natural to wonder what’s in store for shares in 2024. Up, down, or in between? And could the market crash? Here are my thoughts.
A frightening backdrop
Stepping back, I think it’s entirely understandable that most UK shares are struggling to move higher.
After all, the war in Ukraine is into day 642 with no end in sight, while the Middle East tragically erupted into conflict again in October. Nobody knows how or when these wars will end.
Nor does anyone know how the tense situation between Taiwan and China will play out. Taiwan recently reported renewed Chinese military activity in the Taiwan Strait, including warships carrying out what it says are combat readiness patrols.
In October, hedge fund billionaire Ray Dalio said he thinks the odds of a “hot world war” developing have increased to 50%. If that’s accurate, let’s hope the world comes out on the right side of that coin flip.
Meanwhile, interest rates remain at their highest level since 2009. And though the Bank of England (BoE) appears to be done hiking rates, the economy could still enter a recession next year.
What to do?
Given this gloomy and scary situation, what should I do?
One idea is to wait until the situation improves before investing money. However, this is unlikely to be an optimal strategy for a couple of reasons.
First, the market is forward-looking. We’ll only know the outlook appears brighter once investors have already started to pile back into stocks.
However, by this point, it could be too late. That’s because there are typically only a handful of truly exceptional days in the market per year. And studies have shown that missing out on these huge rallies is disastrous for long-term returns.
Therefore, it’s better for me to just invest and not worry about timing the market.
Second, UK stocks are already cheap, so there’s little point waiting to see if they get even cheaper. They might not and the opportunity could pass me by.
Foolish optimism
Ultimately, nobody knows whether the market will crash. But there are a few reasons why I don’t think it will.
For starters, as mentioned, the UK market is already great value. That means earnings multiples are low, which suggests a crash is less likely. And while under some pressure, profits and dividends at most UK companies aren’t forecast to collapse in 2024.
Meanwhile, share buybacks remain strong and plentiful, indicating corporate confidence.
Second, interest rates and stock prices generally have an inverse relationship. When rates rise, stocks generally fall and vice versa. The BoE is expected to start lowering rates next year and that should be a positive development for shares.
Personally, I don’t think the stock market will crash in 2024. In fact, I’m Foolishly optimistic it will hold up well.
Finally, we should remember that a crash is a drop of more than 20%. Given how low today’s valuations already are, a market meltdown would just compound this cheapness. And that would likely produce once-in-a-generation buying opportunities.
