Will 2024 bring more of the same from the stock market, or will things be different? Optimists about share prices over the next 12 months have two main ideas.
One is that the stocks that have done well in 2023 will continue to outperform. The other is for a broader cyclical recovery, with stocks that struggled this year getting a boost.
More of the same?
The stock market in 2023 has been dominated by a few key themes. The most prominent, though is the emergence of AI, which has led to tech companies like FTSE 100 stock RELX seeing their shares soar.
Those who think the themes that dominated 2023 will persist into 2024 believe the same companies have a good chance of continuing to do well. That would lead to quite a gap between the winners and the losers.
The alternative is that share prices are at something of a turning point. If this happens, then the stocks that do well in 2024 should include the likes of Barclays, which is down significantly this year.
These ideas are essentially at odds with one another — one says that things will stay the same the other says they’ll be different. So who’s right?
Macroeconomics
The question of whether this year’s themes will persist probably comes down to some macroeconomic factors. These include inflation, interest rates, and the possibility of a recession.
2023 has been a year of high inflation, rising interest rates, and low economic growth. But with inflation down and interest rates stabilising at 5.25%, there’s a chance things could be different next year.
If so, conditions could be right for a recovery in the stocks that have struggled this year. But if inflation reignites and rates go higher, then 2024 is likely to bring more of the same.
Unfortunately, accurate macroeconomic predictions are very difficult to generate. Fortunately, though, investors with a long-term outlook probably don’t need to worry too much.
Beyond 2024
As a long-term investor, I probably don’t need to worry too much about what share prices will do in 2024. If I’m not looking to sell any shares next year, the amount I can get for them doesn’t really matter.
That’s not to say I can disregard economic forecasts entirely. I’m looking to earn a return from the underlying businesses, so how they’re going to perform is relevant to the return I can expect.
Over time, though, this is much more likely to come down to the strength of the underlying business than macroeconomic conditions. So I’m focused on buying shares in quality companies at attractive prices.
Rather than what the economic environment will do to stocks in the future, I’m interested in what it’s doing now. Specifically, I’m looking for where inflation and rising interest rates are artificially lowering share prices.
Finding stocks to buy
Buying shares in good businesses when they trade at attractive prices is a strategy I expect to pay off sooner or later. Whatever happens with the stock market in 2024, I think there will be opportunities to do this.
I’ll keep a close eye on the macroeconomic data next year. But I’ll be doing it with a view to working out where the buying opportunities are, not which stocks are getting a boost.
