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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 struggling housing market, especially here in the UK.
On top of this, a banking crisis in the United States has raised fears that we could be heading for a recession.
Additionally, China – one of the world's largest economies – has had its own problems with growth and the housing market. This – like the US banking crisis – has had a material impact on global markets in general.
Finally, geopolitical issues around the world have not helped.
What could happen next?
A peaceful solution to geopolitical conflicts could have a positive impact on the markets. An excellent example of such an effect could be the lifting of sanctions against Russia. The superpower is one of the largest producers and exporters of fossil fuels. This restoration of supply could help reduce energy prices and improve market confidence.
Next, if the Federal Reserve (the US central bank) decides to start cutting interest rates, I can see other major economies (including the UK) doing the same. A drop in interest rates could push markets higher. A consequence 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 strengthen markets.
Similarly, if the Chinese economy can return to previous levels of growth, I can see markets rising as well. This is due to the vital role that the Chinese economy plays in the manufacturing sector for a large number of products and industries around the world.
Finally, if the UK government can reduce inflation and stimulate the economy enough for people to spend money on things other than essentials, there is a good chance that market confidence will also increase. House prices and confidence in that market may also increase.
What do I predict could happen?
I think some of the above events I've described could happen. For example, I can certainly see that the geopolitical landscape is changing towards a positive outcome. This is something I'm sure many are hoping and praying for, including me.
Next, if we look closer, inflation has been falling in recent months according to government figures. This led to the base interest rate remaining constant rather than increasing in the last review. Some think we could soon be headed toward a rate cut. However, I must admit that I don't see rates moving from current levels to pre-volatility levels in the space of 12 months. This will be a slower process, but any rate cuts could push stocks higher.
Lastly, unless this is a major global issue 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 stocks skyrocket to never-before-seen heights.
I think 2024 could be better than 2023 from a stock market perspective with higher sentiment. However, he would end by saying that some of the things that need to happen are not overnight solutions and that it may take more than a calendar year for real change to impact global markets.
