What the World’s Top Financial Minds Are Predicting for 2024

(Bloomberg) --

At the end of every year, Wall Street’s best and brightest release their predictions about where the economy is heading next. Markets reporter Sam Potter has pored through this year’s financial tea leaves — thousands of pages of them — and joined the show to share the most significant takeaways. Overall, there’s optimism about a “soft-ish” landing, disinflation, and continued consumer strength. 

But the consensus view has missed the mark before, and 2024 will bring new unknowns, from interest rate changes to technological advances to global elections. We walk through the possibilities, and the stakes: What can we expect if Wall Street is right? And what happens if they’re wrong?

Read more: Here’s (Almost) Everything Wall Street Expects in 2024

Here is a lightly edited transcript of the conversation:

Sarah Holder: My colleague Sam Potter reports on markets for Bloomberg. I called him at home in London. And he told me that every year, around October, he gets the feeling that something big is coming.

Sam Potter: I always have this moment where I think, can I really go through this again this year? Can I just palm it off to someone else?

Sarah Holder: What Sam has to go through is an exercise in predicting the future. Or at least, the version of the future Wall Street is expecting.

Sarah Holder: Sam, you've had a busy couple of months reading the investment tea leaves. Tell us what you've been up to.

Sam Potter: Yeah, I have been reading just about everything that Wall Street has written about the year ahead. So the major banks, the biggest asset managers, major advisors, anyone who has put out an outlook for 2024 on either the markets or the economy, generally global stuff.

Sarah Holder: The "tea leaves" he relies on are called investment outlooks. They're reports that Wall Street's best and brightest release late every fall, outlining what they expect to happen next year.

Sam Potter: It's an exercise in trying to appear smarter, better prepared, better placed to manage other people's money.  And oftentimes what firms will do, we'll try to make it a bit more interesting by adding themes. You know, these are the big themes that we see, try and make it thematic. But actually sometimes that just makes it much harder to read.

Sarah Holder: Sam has had a lot of practice reading and digesting these reports. Over the last months of 2023, he's gone through more than six-hundred and fifty of them.

Sam Potter: have been pouring through it and it has amounted to dozens and dozens of outlooks and hundreds and hundreds and probably thousands of pages. So I'm a little bit cross-eyed at this point.

Sarah Holder: As he reads, Sam looks for the clear takeaways, categorizes the responses and assembles each institutions’ key predictions in a database on Bloomberg dot com.

Sam Potter: So I like the ones that are kind of clear, concise and hopefully making firm predictions for the year ahead because a lot of what they do as well is say very vague things like the path of inflation is going to be important in the year ahead. And I mean, anyone on Wall Street knows that. 

Sarah Holder: The more reports Sam takes in, the more he starts to see the big picture; the consensus view on just about everything the financial world is anticipating in the year to come. And that consensus view matters. Because Sam isn't the only one reading these outlook reports. All kinds of financial professionals are taking in the same information and investing trillions of dollars based on what they see.

Today on the show: what are the world's top financial minds predicting for 2024? Are we heading into a recession? Will the AI bubble burst? And how might elections around the world affect the markets? I'm your host Sarah Holder, and this is The Big Take from Bloomberg News. 

Sarah Holder: Give it to me straight. What's the general sense? Are we doomed or are investors seeing reasons to be hopeful in 2024?

Sam Potter: I've been doing this for about five or six years now. The thing that stood out to me this year was a slightly broader consensus than normal. And it's not a very exciting one, I have to say, nor is it scary. Basically, the consensus on Wall Street at the moment is that the interest rate hikes that we've seen over the last 18 months to two years, they're finally going to start to bite properly, finally going to start to put the brakes on the economy. So we're going to see some economic slowdown, but it's not going to be, it's not expected to be extreme. It's going to be, “mild,” “benign” — these are the sort of words they're throwing around — a “healthy” slowdown. 

Sarah Holder: A “mild,” “benign” or “healthy” slowdown. In other words, Sam says Wall Street is for the most part expecting that the U.S. will pull off what's been called a "soft landing."

Sam Potter: The Fed policy makers around the world, central bankers, they are trying to walk a tightrope. They're trying to increase those borrowing costs to cool the economy so it's not growing too fast, so prices aren't rising too quick. But they want to do it gently and hence the soft. They want to do it in a way that companies can still borrow. It's more expensive, but it doesn't put the brakes on their operations. Consumers can still spend and have confidence in their jobs. It's a cooling of the economy, a slight slowdown, but that isn't so tough that people feel it too much.

Sarah Holder: An important thing to know is those hundreds of outlook reports Sam and others have been reading? They mostly come out in November.

Sam Potter: That means that they were all written and published often well before the final Fed meeting of 2023.

Jerome Powell: Good afternoon.  My colleagues and I remain squarely focused on our dual mandate to promote maximum employment and stable prices for the American people. 

Sam Potter: So we've already seen in that final Fed meeting. Um, the first hints of the Fed preparing for a pivot next year, 

Jerome Powell: Today, we decided to leave our policy interest rate unchanged and to continue to reduce our securities holdings.  Given how far we have come, along with the uncertainties and risks that we face, the committee is proceeding carefully.

Sam Potter: It's an indication that the rate hike cycle is at its peak now that we're not expecting any more increases and that the next move will be — it may be a long way off — but the next actual move in rates might be a cut. So, possibly the broad view is that the feds aggressive hiking — and it was aggressive hiking — the Fed has successfully put the brake on, on to inflation. Um, it's still at a, at a higher level. It's still above target.

But most of these outlooks, um, the majority certainly are expecting disinflation to continue. Gradually inflation will decline. I would say that not a lot of the outlooks are expecting inflation to fall to the 2 percent target, at least not next year. But they do generally believe it will fall enough, um, to take the pressure off the Fed and to allow some moderate interest rate cuts that would help just guard against a steeper economic decline. 

Sarah Holder:  Declining interest rates”... the “taming of inflation”... those are all good things in the eyes of the market. And after most of those outlooks were published, the stock market went on a tear.

You can hear how exciting it was for finance journalists at the time:  

Josh Lipton, Yahoo Finance News:  … a very strong year here, a strong run that is, of course, you can chalk that up to the boom of interest in AI that has helped lead the charge for the so called Magnificent Seven. That's Amazon, Apple, Alphabet, Meta and Tesla. 

Yahoo Finance Anchor: … tech stocks were certainly the star of the show for most of 2023. The so called Magnificent seven fueled by AI enthusiasm driving the market higher. over the course of the year…

Julie Hyman, Yahoo Finance News: The NASDAQ 100 is setting up for its best year going back to 1999. The composite for its best year since two thousand and three. 

Sarah Holder: The NASDAQ 100 went up by more than 50% in 2023. That's the biggest run since the dot com boom.

Sarah Holder: A lot of regular people who are not writing these investment outlooks feel like the economy is worse than it looks on paper or actually is. Is there a sense that the national mood in the U. S. is going to change in the next year?

Sam Potter: I think you probably have to allow for the fact that Wall Street is maybe not well attuned to Main Street always. But the thing that surprised Wall Street and that surprised everyone really was the strength in particular of the American consumer.

Sarah Holder: Financial analysts around the world were caught off guard by how much money American consumers spent through 2023. A lot of that excess spending was later attributed to Americans being able to save extra money during the pandemic with help from stimulus checks and pandemic closures.

Sam says the broad view is that consumers will keep on spending through the next year. But not all of the reports he read agree with that prediction.

Sam Potter: But the bearish guys out there, the outliers are saying, well, hang on, the consumer is running out of cash. The pandemic savings glut, the pandemic dividend, as some have called it, people don't have that money anymore. And they're starting to get nervous and borrowing has become harder and more expensive.

And so the question for the year ahead is going to be how resilient is the consumer going to stay? I can't speak to the people on Main Street, but certainly the bears are worried that consumers are running out of cash. And if they're right, then it could be a harder landing than consensus thinks.

Sarah Holder: If 2024 unfolds like the outlooks say it will, how will the year feel for consumers around the world?

Sam Potter: The outlook's pretty gloomy in terms of Europe, in terms of the UK — those economies are not expected to be firing on all cylinders anytime soon. China has been struggling, struggling with its own domestic issues. It's not coming to rescue the world with sort of power powerhouse expansion or policies. Everyone's very domestically focused at the moment. Europe is still trying to tame inflation. 

So there'll be no great demand surge is the general view. It's going to be a, a kind of messy picture. And I don't think that, I don't think that necessarily bodes brilliantly for the consumer because, um, there's going to be no big boom.

Sarah Holder: Sam has been writing these outlooks for years. And he says it's important to take these predictions with a grain of salt.

Sam Potter: The truth is that probably three out of the last four or five years have been very different to how Wall Street expected.

Sam Potter: There seems to be, we've been in this period where, um, something comes out of the blue to disrupt everyone's, kind of thesis.

So in 2020, we had the pandemic, which by March was derailing economies worldwide, changed the picture for everyone. Um, In 2022 also, it was late February when Russia invaded Ukraine, And now the impact of that was on energy prices, which feeds into everything in the economy. So that tore up expectations there.

And then last year, a lot of Wall Street expected quite serious recession, or at least a recession to hit because the Fed was aggressively raising interest rates, making it more expensive to borrow. And they know— we know from history that that's going to hit the economy. So the last few years have not been great for Wall Street’s track record at predicting the future. But in their defense, there have been some very unexpected things that have gone on.

Sarah Holder: Those disruptive forces can also take the form of unexpected growth, like the surprising strength of the consumer and the explosive rise of AI-related stocks in 2023. Sam says all the uncertainty and wrong predictions of the last few years are likely part of what's behind this year's middle-of-the-road consensus view.

Sam Potter: Perhaps that’s a reaction to what’s gone before. No one wants to make a really big call, right? If you've been proved wrong a few years in a row.

Sarah Holder: There are a lot of unknowns on the horizon in 2024. One of the big ones is whether the AI-frenzy can be expected to hold.

Sarah Holder: Do experts have a sense of whether that bubble will burst?

Sam Potter: The outlook for 2024. is actually pretty good regarding AI. I think Wall Street doesn't see this as a sort of flash in the pan development. It sees AI as a thematic shift or an evolution, um, that isn't finished yet. I mean, I'm sure a lot of people listening to this — they will have used AI tools and they'll know that the benefits and limitations. From what I can tell from the outlooks, a lot of them layout AI as an investment theme, not just for 2024, but for the next couple of years.

Sarah Holder: Elections are another big unknown. In 2024, voters could change the political leadership of nearly half the global economy. 

Sarah Holder: We've got elections coming up in Taiwan, the U.K., India, the U.S. How are investment outlooks grappling with those specific political unknowns?

Sam Potter: The biggest issue probably is the U.S. election. The U.S. is the biggest economy. It leads the world. Whoever wins the election will set the tone for foreign policy, economic policy, um, and that feeds into all the other economies and markets in the world. And yet there is no clear front runner for the election in the U S yet. And so most of the outlooks, they're not ready to make a call on that yet. Or they'll say something, they'll hedge their bets. They'll say something, ‘Just prepare for volatility. Be ready and it will get worse as we get closer to the election.’

Sarah Holder: So much of what will affect markets in 2024 is nearly impossible to predict. So what’s the value of all these outlooks? That’s coming up.

Sarah Holder: With so many unknowns, it is always possible that the consensus view will prove to be wrong. One outlook Sam read called it a “fairy tale.” That means it’s also possible one of the outliers will be right. So what are they saying?

On the whole, Sam’s reporting shows that they’re mostly negative. BCA Research says the macro picture is more troubling now than it was 12 months ago. Deutsche Bank is bracing for a hard US landing.

But there are also some who take a more optimistic view. UBS Asset Management says global equities could reach an all-time high. And Commonwealth Financial Network expects a Goldilocks economy to offer an “ideal state” for financial markets.

Given all this, I put it to Sam:

Sarah Holder: How much trust are you placing in this year’s market outlook? 

Sam Potter: I've been covering markets and Wall Street long enough to know that at the end of the day, nobody knows anything because you see the biggest experts, humbled by unexpected things. And you see people get lucky all the time or very unlucky. 

It is a thankless task for these guys doing this every year, knowing— because it's like an expected thing. You tell me what's going to happen next year. Everyone knows that the world could be very different in a few weeks, nevermind a few months. So, but they show up, they keep doing it, and I like to look at it for ideas. And to see who's reasoning it out and why they think this, what the rationale is. And in a way it informs some of the reporting that we do in the year ahead, you know, because we'll be looking at certain areas and looking for certain things. So, um, it's just a fascinating project for me.

Sarah Holder: Thank you so much, Sam. Really, really appreciate it.

Sam Potter: My pleasure. Thanks for having me.

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