By Canada Life | Jan. 2, 2024

Our 2024 market outlook foreword paints a vivid picture of 2023’s dynamic economic landscape and sets the stage for what investors might expect in 2024. 

The biggest financial story of the year was the major central banks’ unprecedented monetary tightening in response to the pressing concerns of investors worldwide. This marked the end of the period of rapid interest rate increases the likes of which hadn’t been seen in decades. The pause in rate hikes suggests further increases might not be necessary to tame inflation. This shift in monetary policy had a profound ripple effect on global equity and fixed income markets.

The equity market of 2023 saw growth stocks outshining value stocks. Canadian market returns trailed behind those in the U.S. and other international markets. Consumers grew more concerned about high borrowing costs. Meanwhile, fixed income markets experienced a modest decline, influenced by rising rates, an inverted yield curve and the outperformance of riskier products.

During this uncertain economic growth and higher bond yields, investors noticeably shifted towards cash equivalent-type solutions, like high interest savings accounts (HISAs) and guaranteed investment certificates (GICs). This trend shows a growing preference for safety and the benefits of elevated interest rates, even as it highlights the risk of missing out on potentially stronger returns in other asset classes.

Looking ahead to 2024, the potential end of ultra-low interest rates could signal a change in investor psychology. Growth stocks, which dominated the previous decade, might face challenges from dividend and value strategies. A shift into a 'higher for longer' interest rate environment could significantly impact consumer spending, saving, and investment decisions.

As we step into 2024, investment professionals will continue to debate whether a global recession was averted or delayed. Geopolitical conflicts, particularly those in Ukraine and the Middle East, are likely to continue, affecting trade relationships and potentially increasing volatility in commodity prices.

In this new regime characterized by higher interest rates, geopolitical tensions and economic uncertainty, risk management is vital. Investors must navigate risks from economic policy to sector-specific challenges and concentrated equity markets. The traditional 'set and forget' approach of a 60/40 portfolio may no longer work, underscoring the need for flexible strategies.

Our 2024 market outlook aims to guide meaningful client conversations and enhance asset allocation decisions. It covers a range of topics including the potential regional divergence in monetary policy, the financial challenges to carbon-neutral goals, the implications of prolonged higher interest rates, diversification opportunities in fixed income and the promising impact of artificial intelligence on equity markets. This outlook is part of our commitment to inform investors and support building resilient portfolios.

For more comprehensive analysis from our leading investment managers, download our Market Outlook 2024.

Unlike mutual funds, the returns and principal of GICs are guaranteed.

This commentary contains forward-looking information which reflects our or third-party current expectations or forecasts of future events. Forward-looking information is inherently subject to, among other things, risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed herein. These risks, uncertainties and assumptions include, without limitation, general economic, political and market factors, interest and foreign exchange rates, the volatility of equity and capital markets, business competition, technological change, changes in government regulations, changes in tax laws, unexpected judicial or regulatory proceedings and catastrophic events. Please consider these and other factors carefully and not place undue reliance on forward-looking information. The forward-looking information contained herein is current only as of Nov 17, 2023. There should be no expectation that such information will in all circumstances be updated, supplemented or revised whether as a result of new information, changing circumstances, future events or otherwise.

The content of this communication is not to be used or construed as investment advice, as an offer to sell or the solicitation of an offer to buy, or an endorsement, recommendation or sponsorship of any entity or security cited. Although we endeavour to ensure its accuracy and completeness, we assume no responsibility for any reliance upon it.

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