2024 Investment Outlook


Morgan Stanley Wealth Management

For more information about the author, click to view their website: Morgan Stanley

Posted on

Jan 09, 2024


Florida - Southwest

Share This

Investors face tough choices in an imperfect world, but can look for opportunities in fixed income while remaining cautious on emerging markets and commodities.

Investors will need to make deliberate choices in 2024, paying close attention to monetary policy if they want to avoid a variety of potential pitfalls and find opportunities in an imperfect world of cooling but still-too-high inflation and slowing global growth.  

Markets have already baked into asset prices the idea that central banks will manage a smooth transition to reduced levels of inflation—meaning there’s limited runway for increased valuations. But 2024 should be a good year for income investing, with Morgan Stanley Research strategists calling bright spots in high-quality fixed income and government bonds in developed markets, among other areas.    

“Central banks will have to get the balance correct between tightening just enough and easing quickly enough,” says Serena Tang, Chief Global Cross-Asset Strategist at Morgan Stanley Research. “For investors, 2024 should be all about threading the needle and looking for small openings in markets that can generate positive returns.”  

Getting through the last stretch of inflation is likely to lead to slower growth, particularly in the U.S., Europe and the UK. Meanwhile, China's tepid growth will weigh on emerging markets, and there's a risk that the country's economy could get sucked into a wider debt-deflation spiral, with ripple effects for the rest of Asia and beyond. Morgan Stanley predicts that China will avoid the worst-case scenario, and that U.S. and European policymakers will begin cutting rates in June 2024, improving the macroeconomic outlook for the second half of the year.  

A Tale of Two Halves

In 2023, equity markets showed strong performance as they recovered from the recession fears that fed into the October 2022 trough, proving more resilient than analysts expected. However, 2024 is likely to be a “tale of two halves,” with a cautious first half giving way to stronger performance in the second half of the year.

For the first half of 2024, strategists recommend that investors stay patient and be selective. Risks to global growth—driven by monetary policy—remain high, and earnings headwinds may persist into early 2024 before a recovery takes hold. Global stocks typically begin to sell off in the three months leading into a new round of monetary easing, as risk assets start pricing in slower growth.  If central banks stay on track to begin cutting rates in June, global equities may see a decrease in valuation early in the year. 

In the second half of the year, however, falling inflation should lead to monetary easing, bolstering growth. “We think near-term uncertainty will give way to a comeback in U.S. equities,” says Mike Wilson, Chief Investment Officer and Chief U.S. Equity Strategist for Morgan Stanley.  And Wilson expects earnings growth to remain robust into 2025: “Positive operating leverage and productivity growth from artificial intelligence should lead to margin expansion.”  

Throughout the year, however, there should be a few constants. Overall, U.S. equities are likely to have fair returns and better outcomes than European or emerging-market stocks.  “This becomes especially true if these economies don’t manage a soft landing,” says Tang. “In that case, we are likely to see a flight to quality in which the U.S. outperforms.”

Emerging-markets equities face obstacles, including a strengthening dollar and lackluster growth in China, where policymakers face the triple challenges of debt, demographics and deflation. These risks are compounded by the corporate focus on diversifying supply chains amid geopolitical tensions and the fallout from pandemic-era disruptions. However, emerging markets could see stronger recovery in the second half as lower rates and a weakening U.S. dollar could prompt inflows. 

One global bright spot is high-quality fixed income. Yields on a broad cross-section of U.S. corporate and government bonds reached 6%, the highest since 2009. U.S. Treasury and German Bund yields are the highest they have been in a decade, and Morgan Stanley forecasts 10-year yields on U.S. Treasury's at 3.95%, and DBR at 1.8% by the end of 2024. 

What might work for investors in this imperfect world? Morgan Stanley’s recommended portfolio construction has a lower risk profile than our cross-asset benchmark, largely due to strategists’ recommendations for lower-than-average allocations in commodities and emerging-market stocks.

Overall, Morgan Stanley strategists suggest an overweight across a broad range of bonds, an equal weight in both stocks and cash, and a significant underweight for commodities. 

Here are some of the key views:

  • Overweight core fixed income, including government debt, agency mortgage-backed debt and investment-grade debt. It is likely to be a good year for income investing as high-quality debt continues to provide attractive yields, especially when compared against the risk/reward tradeoffs of other assets.

  • Overweight Japanese stocks. Japanese policymakers have been an outlier among central banks, keeping interest rates low to boost growth.  

  • Equal weight U.S. equities. For the past two years, the outlook was gloomier for stocks in the U.S. than anywhere else in the world. However, 2024 is shaping up to be different as U.S. equities should notch better outcomes than European or emerging market equities, particularly as central bankers globally aim for target rates.  Within the U.S., healthcare is forecast to outperform, and Morgan Stanley prefers industrials relative to other cyclical sectors.

  • Underweight emerging-market equities, except Mexico and India. China’s lackluster growth will weigh on emerging markets broadly, and there is an added risk that its economy will get caught in a debt-deflation tailspin. By contrast, Mexico is likely to benefit from the post-pandemic near-shoring trend, while India is forecast to see superior growth in earnings per share compared with broader emerging markets. 

  • Underweight commodities. Oil is forecast to trade at relatively flat prices in 2024 and geopolitics remain a concern, while gold appears overvalued. Copper, which could outperform because of stronger-than-expected demand from China, may be an exception.

Investors should keep in mind that the markets have priced in the expectation that economic growth will go smoothly, and that central bankers will succeed in engineering a soft landing.  

“Markets seem to already assume that central banks can stick the landing,” Tang said says. “There is little room for error as far as valuations are concerned.”

IndexCurrent PriceBullBaseBear
S&P 5004,3835,0504,5003,850
MSCI Europe1,7982,0401,8101,480
MSCI EM9581,1401,000750
Source: FactSet, Morgan Stanley research Forecast; Note: Data as of Nov. 8, 2023.

Other Articles You May Like

Financing Senior Care & Assisted Living

PERSONAL FUNDS Utilizing personal funds to pay for a move to a Senior Living Community is an uncomplicated option for some people. Whether it be through savings, liquidating certain assets, or drawing upon investment income, this strategy provides seniors with a payment method that they have the most direct control over. Working with a financial advisor to plan for this is often beneficial. In addition, many Senior Living Communities have special team members who are experienced in financial matters and can offer assistance as well. SOCIAL SECURITY & MEDICARE   Social Security payments can be used to help pay for the costs of living in a Senior Community. However, the amount it would cover will depend on the recipients monthly benefit.  According to U.S. News and World Report, the current average benefit paid is $1,657 each month. It is important to understand that while Medicare does not cover the actual costs of living in an Independent Living, Assisted Living or Memory Care Community, it does help pay for other critical needs, such as prescriptions, doctor visits, medical equipment and  other health care related expenses. LONG TERM CARE INSURANCE & LIFE INSURANCE Long Term Care insurance (LTC) is a special type of policy that helps pay the expenses of home care or a Senior Living Community. The amount of benefit available from a LTC policy can vary by such factors as the amount of the monthly payment, as well as the duration of the benefit.  Some life insurance policies can be cashed in for a lump sum payment while the insured is still living under what is known as a Life Settlement arrangement. Policy holders should review their life insurance contracts to see if this feature is available to them.    VETERANS BENEFITS If you or a loved one served in the military, the U.S. Department of Veterans Affairs (VA) has programs that can help pay for certain Senior Living services. While these dont pay for direct housing expenses, the VAs Aid and Attendance benefit is available to veterans that meet certain income requirements and also have difficulty performing activities of daily living (ADLs), such as dressing, eating, bathing, using the restroom, or moving about.  REAL ESTATE ASSETS If the person thinking about moving into a Senior Community is a homeowner, their house can be a good revenue source. Selling the home, renting it out, or arranging for a Home Equity Line of Credit (HELOC) are all ways to help pay for living expenses at the new residence. If you have any questions, call us today at 402-819-0669.

Why Use an SRES when Selling your Home?

Is it time to sell your home? Maybe youre ready to retire, downsize or a major event has made it necessary to move to a senior community.  No matter what the reason a Seniors Real Estate Specialist (SRES) has unique training to help guide you through the process and find whats right for you.  Selling a home can be a difficult decision and is an emotional time for most.  An SRES understands the issues facing older adults and their families.  They will patiently support and help you through each step by taking the time needed to make everyone feel comfortable through the complex process. An SRES has built a network of professionals who are also focused on serving older adults.  Theyve identified helpful experts in all areas, from financial and tax specialists to right-sizing and moving help, along with trusted contractors to prepare the home. Their ties throughout the 55+ community can even help you with finding the right active adult community or other more needs specific senior community.  Your SRES is looking out for your best interests throughout all aspects of your transition, not just the sale of your home.  Theyve invested time in becoming an SRES because they enjoy working with clients in your situation and truly care about helping others. You can count on your SRES to guide you by making the entire process less stressful and more successful.  Editors Note: This article was written by Alyce Chermack, Realtor & SRES. Alyce is a Seniors Real Estate Specialist with The Platinum Group, REALTORS and can be reached at 303-475-2792 or via email at Alyce@PlatinumHomeSales.com

5 Technology Investing Trends for 2023

                                             Companies and investors are watching five technology trends around the exchange of data in industrials, insurance, healthcare, digital infrastructure and resource planning.A number of industries need technology solutions that facilitate the widespread exchange of data, creating opportunities for public and private investing and M&A.Industrial companies are investing in technology that manages, digitalizes and automates their physical assets.Technology developments in insurance may lead to the next fintech.Healthcare providers are seeking solutions that improve productivity and patient outcomes.Digital infrastructure will evolve to support massive and growing data needs.Artificial intelligence, cloud and security are trends to watch in enterprise resource planning and human resources. Interoperabilitysoftware platforms ability to communicate and share data and informationis the next frontier for technology innovation. Technology companies are increasing their customer bases with products that connect disparate data for consumers, creating a seamless experience. At Morgan Stanleys recent Technology, Media and Telecom (TMT) Conference in Barcelona, the firms investment bankers discussed five key themes in this space that point to investment opportunities. Were in the very early innings of a multi-decade development in data, analytics capabilities and software within specific industries, said Lauren Ares, a Morgan Stanley banker specializing in B2B information services and data analytics. Businesses are vying to become top-three market leaders in the sectors where they are focused, and investors are looking where to place their bets.1Industrial Companies: Early Stages of Digital ConnectivityIndustrial companies in the automotive, energy and construction sectors are just starting to use systems that offer help managing physical assets and that connect disparate parts of value chains. There are numerous opportunities for industrials to increase efficiency with such solutions. For an energy company, for example, helpful connectivity solutions might offer an overview of all physical assets as well as features such as pipeline safety notifications that automatically assign workers to investigate and address issues, said Bjoern Crombach, a Morgan Stanley banker who specializes in industrial software. For a car manufacturer, technologies might automate reordering paint once supply runs low to help the company keep up production. Industrial companies are demanding software that helps manage their different stages of day-to-day business, Crombach said. Private companies are offering a number of promising solutions, and thus attracting the attention of large public companies interested in acquisitions, he said.2Insurtech: The Next Fintech?Compared to industrials, technology is in further stages of development for the insurance sector (known as insurtech) as proliferation and use of software applications in the industry has been growing for five years, Ares said. A significant number of businesses have emerged in insurtech with meaningful revenue growth and attractive profitability, he said. Investors are interested in whether insurtech could be the next fintech. Insurtech technology spans data analysis, Internet of Things (IoT)i.e., physical devicesand AI, and it aims to facilitate cost savings and efficiencies in processing claims, evaluating risks and underwriting policies. With mainstream adoption of open banking and payments apps in the last decade, fintech has become the poster child proving the value of networks that connect and manage various sources and forms of data, an incredibly sticky proposition for any industry, Ares said. Companies offering tailored technology solutions in verticals such as insurance are betting that apps and online platforms can catch on, similar to how they did in consumer banking and financial services.3Healthcare Technology for the Continuum of CareHealthcare is an industry lagging behind in its adoption of technology, so opportunities abound to improve patient outcomes and accessibility to healthcare amid caregiver labor shortages and the rising cost of care in Europe and the U.S. One method is complete data sharing between patients doctors and care locations (i.e. clinics and labs): Data-centric healthcare requires technology embedded throughout the continuum of care, said Marie-Gabrielle Bui, a Morgan Stanley banker who specializes in healthcare technology. A patients doctors and patients themselves should be able to easily access secure data that is privacy-compliant across care locations. Another lever is to move chronic patients from emergency care, which is extremely expensive, to preventative care, which is more affordable, Bui said. One example is healthcare technology that helps diabetic patients by continuously monitoring their glucose levels, warning them when levels are too high and scheduling doctors appointments and follow-up when necessary. Other avenues include artificial intelligence (AI)-backed symptom checkers and gamified apps for patient engagement or chatbots providing tools for psychological support, such as cognitive behavioral therapy. Given wide demand for healthcare technology, companies are looking to acquire businesses that offer healthcare software or digital health tools because M&Aeven across country bordersmay cost less than fully developing solutions in-house, Bui said. In particular, European companies are interested in acquisitions to capture more geographic market share, despite different local regulations.4Trends in Digital InfrastructureData consumption by businesses and consumers is continuing to grow exponentially, driving demand for all types of digital infrastructurenotably fiber, data centers and mobile towers. In recent years, this has also driven high levels of M&A activity and valuations, with lower-cost capital providers becoming increasingly comfortable with future growth prospects. Nevertheless, the current macroeconomic environment is a test for the asset class, said Max Thiele, a Morgan Stanley banker who specializes in digital infrastructure: While the investment case for digital infrastructure continues to be very strong and demand for quality assets is high, companies and investors are carefully scrutinizing the impact of inflation, power prices and the risk of recession, including if and how certain cost drivers can be passed through to customers. In addition, market participants are searching for the next adjacent infrastructure growth and capital deployment opportunities, Thiele said. This includes investments in tier 2 cities and markets, infrastructure deployments in preparation of new exciting use cases, such as edge computing, and also asset classes that have historically not been considered classic infrastructure but have proven highly predictable and economically resilient.5Cloud and AI for Resource Planning and HRCompanies across industries are looking to technology to streamline internal functions such as enterprise resource planning (ERP) and human resources (HR), said Leila Harestani, a Morgan Stanley banker who specializes in ERP and HR technology. In ERP, one of the biggest trends is cloud for deployment, in which software is hosted on vendors servers and accessed through a web browser, generally at a lower cost than the alternative on-premises software, which is installed locally on a companys computers or servers. As cloud-based ERP proliferates, more small- and medium-sized businesses may adopt these solutions, but vendors will have to prove they have prepared for security risks, such as who can access sensitive data and potential data theft by malicious actors, Harestani said. Another important theme is the use of AI to identify and learn from data patterns, which offers widespread applications for forecasting and modelling, supply chain tracking and customer service. In HR, AI is useful for recruiting, onboarding and employee engagement, and companies are also investigating how the blockchain could enable better data security through encryption, according to Harestani. Emerging private companies are the frontrunners offering these ERP and HR capabilities, and that has led to M&A interest from bigger companies, Harestani said. The more innovative and advanced technology solutions are coming from start-ups, and existing players in the marketlarger companies and private equity firmsmay look to acquire them.Looking AheadEmerging technology in industrials, insurance, healthcare, digital infrastructure and enterprise resource planning is enabling the exchange of data across value chains, and investors are monitoring companies that help connect data across disparate sources in specific sectors. Given demand for these solutions, big companies and private equity firms are on the hunt for acquisitions to increase their market share within industry verticals. Next

Local Services By This Author

Morgan Stanley Wealth Management

Financial Advisor 8889 Pelican Bay Boulevard, Naples, Florida, 34108

At Morgan Stanley, we advise, originate, trade, manage and distribute capital for people, governments and institutions, always with a standard of excellence and guided by our core values.Morgan Stanley is dedicated to providing first-class service to our clients, in a way that reflects our commitment to creating a more sustainable future and fostering stronger communities around the world. In each line of business, we strive to demonstrate our belief in the power of transformative thinking, innovative strategies and leading-edge solutionsand in the ability of capital to work for the benefit of all society.