By Portfolio Solutions Group | Jan. 2, 2024

Read on to learn about PSG’s market outlook for asset allocation in 2024. Portfolio Solutions Group (PSG), a division of Canada Life Investment Management manages the Target Risk Allocation funds. Target-risk asset allocation funds are a suite of simple, one-step solutions designed to provide returns within a target risk level. Each fund is an entire diversified portfolio that uses various management styles and invests in different industries, countries and types of holdings. 

We anticipate 2024 will be marked by complexities in the capital markets, driven by higher interest rates, diverging economic growth and increased geopolitical tensions. We expect these factors to challenge consumers, corporations, and investors alike, necessitating agility and strategic navigation through shifting market dynamics. PSG expects volatility as a dominant trend through the year.

In the area of fixed income, North America’s prolonged yield curve inversion is viewed as a sign of economic deceleration. It’s anticipated that longer-term rates might decline, leading to a rise in bond prices as the market prepares for softer conditions. Central banks may respond by reducing overnight rates to spur economic activity. As corporate fundamentals weaken and credit risks rise, corporate bonds might underperform compared to government bonds which could prompt a cautious stance towards corporate bonds in 2024.

The equity market is expected to face headwinds due to higher interest rates and geopolitical risks. Focus will likely remain on earnings growth and the fundamentals of companies. The varying impact of higher rates and tighter financial conditions across different regions and sectors will be significant, with consumer behaviour playing a pivotal role in shaping corporate fundamentals. The sustainability of valuation levels, especially in the U.S., remains uncertain.

In the global alternatives sector, Canadian real estate appears well-positioned to capitalize on long-term trends, with industrial growth driven by deglobalization and reshoring. Multi-residential rental apartments in Canada are expected to benefit from persistent demand due to scarcity and affordability issues. Private credit may see more stable yields due to higher rates, although loan loss risks could rise with economic slowdown. Nevertheless, confidence in total returns remains strong.

For more comprehensive analysis, download our Market Outlook 2024.

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.

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