I’m not sure anyone could have predicted the level of stock market volatility we’ve experienced in 2023. Here are my thoughts on what could happen in 2024.
2023 in a snapshot
This year has been dominated by macroeconomic issues. These include soaring inflation, rising interest rates, higher energy and food prices, as well as the housing market struggling, especially here in the UK.
In addition to this, a US banking crisis has sparked fears that we could be heading for a recession.
Furthermore, China – one of the world’s largest economies – has had its own issues with growth and the housing market. This – like the US banking crisis – has had a material impact on wider global markets.
Finally, geopolitical issues throughout the world haven’t helped matters.
What could happen next?
A peaceful solution in geopolitical conflicts could have a positive impact on markets. A prime example of such an effect could be sanctions against Russia being lifted. The superpower is one of the largest producers and exporters of fossil fuels. This restored supply could help bring down energy prices and boost market sentiment.
Next, if the Federal Reserve – the US central bank – decides to start cutting interest rates, I can see other major economies – including the UK – following suit. A fall in interest rates could push the markets higher. A by-product of this in the UK would be lower mortgage rates. This could free up money for consumers to spend on luxuries which could also stimulate other areas of the economy and bolster markets.
Similarly, if the Chinese economy can return towards previous levels of growth, I can also see markets rising. This is because of the vital part China’s economy plays in the manufacturing sector for a plethora of products and industries worldwide.
Finally, if the UK government can bring inflation down and stimulate the economy enough to get people spending money on things other than essentials, there’s a good chance that market sentiment will increase too. House prices and sentiment in that market may increase too.
What do I predict could happen?
I believe some of the above events I’ve described could happen. For example, I can certainly see the geopolitical landscape changing towards a positive outcome. This is something I’m sure many are hoping and praying for, including me.
Next, looking closer to home, inflation has been coming down in recent months according to government figures. This prompted the base interest rate remaining constant rather than rising in the last review. Some think we could be heading towards rates being lowered soon. However, I must admit I can’t see the rates going from current levels towards pre-volatility levels in the space of 12 months. This will be a slower burn, but any rate reductions could push shares upwards.
Finally, barring a major issue globally from an economic perspective, I don’t think we’ll see a market crash in 2024. However, I also don’t think we’ll see shares soar to heights never seen before.
I reckon 2024 could be better than 2023 from a stock market perspective with increased sentiment. However, I’d close by saying some of the things that need to happen aren’t overnight fixes and it may take more than a calendar year for real change to impact global markets.
