THE TRUMPETING ELEPHANT IN THE ROOM

Can The Forecasts For 2024 Be Any Worse Than They Were For 2023?

It’s very much that time of year when every analyst’s crystal ball has been unpacked, polished, and gazed into to satisfy that strange demand for forecasts about what lays in wait for us in the year ahead. I’m not sure what it is about the end of the calendar year that makes it any different from any other randomly selected 12 month period, but let’s not pour cold water on such a popular festive pastime.

Most forecasts are forgotten before the Christmas decorations come down, but last year’s were a little different as virtually everyone forecast the same thing. A quick Google revealed these:

“It would surely be the most-anticipated recession in US history. A model created by Bloomberg Economics puts the risk of 100% with a start date of September” Bloomberg 3 January 2023

“Why a global recession is inevitable in 2023” The Economist November 2022

From the same CNBC article published on December 23^rd 2022 entitled “Why Everyone Thinks A Recession Is Coming In 2023” were the following quotes:

“Now it seems CEOs are falling over themselves to say we’re falling into a recession. … Every person on TV says recession. Every economist says recession. I’ve never seen anything like it.” Mark Zandi, chief economist at Moody’s Analytics.

“You have to blow the dust off your economics textbook. This is going to be a classic recession,” said Tom Simons, money market economist at Jefferies.

But it never happened. Not yet, at least.

There Could Be More Winners And Losers In 2024

There is a noticeable split in the forecasts for 2024 this time around. There are those who make the point that delaying recession is not the same as avoiding recession and that their forecasts were just a bit early. But then, in investment terms, being early is the same as being wrong. Or is it indeed the recession that never came? A growing number of forecasters are coming round to this way of thinking.

When there is a difference of opinion, one side will be to be proven, with hindsight, more right than the other. This is where there could be a clearer number of winners and losers as we head into next year as portfolios will behave very differently depending upon the outcome.

So who is more likely to be right? As with all forecasting, we won’t know until it’s happened. The data and indicators that point towards a recession eventually happening are very persuasive indeed (as they were last year, to be fair) but it wouldn’t be the first time that logic goes out of the window in the face of some unforeseen, or underestimated, event that proves the exception to the rule. And this is where some may be missing the elephant in the room – or more accurately, the TRUMPeting elephant in the room.

2024 Is An Important Election Year

The year ahead has some important elections coming up. Taiwan could be significant in January as it could set the tone for Chinese/US relations depending upon whether the newly elected President is China-friendly or otherwise. Europe, including Russia and possibly the UK if the deadline is brought forward, will also be polling, but perhaps the most significant is the US which will have voted for its President by this time next year.

As it stands, Trump is ahead in the polls. To an outsider, the Panto season in the US appears to extend throughout the whole year when it comes to their political circus with cries of “Oh no he won’t”, “Oh yes he will” accompanying every court appearance and its outcome of whether the former President is facing time in jail. The entire situation with all its participants from either side gives credence to the oft-mentioned observation that fact is, indeed, stranger than fiction.

The Fear Of Losing

This is where it gets interesting from a forecasting perspective. Logic, and historic data, may point towards a delayed recession in the US materialising in the coming months, but this ignores the following pieces from a very complicated jigsaw.

Firstly, the record of an incumbent party being re-elected around a recession is not good (see table below):

The stakes are higher still if you are one of the policy elites in the US who have been striving to ensure that Donald Trump can not be re-elected. In fact, his potential re-election is a recurring nightmare that will not go away for some of these elites as, should he be re-elected, the revenge that he would be expected to wreak upon those who he considers to have been responsible for ousting him would be unthinkable.

So, if they are terrified of a second term, how might this affect the economy?

John Authers touched upon this in his excellent Points of Return column for Bloomberg.

“For Points of Return, no institution is more interesting than the Federal Open Market Committee (FOMC), which sets interest rates.”

He goes on to quote Marko Papic, geopolitical analyst for Clocktower Group, and in my opinion one of the most accurate strategists that I know.

“The FOMC is part of that elite, which practically ensures that the Fed will now lean towards leniency, no matter what assets or data do over the course of the contested election. The Fed has pivoted and it is not going back. Invest accordingly.”

“He argues that this is true whatever the course of the economy. Even a hint of an early recession would induce a panic, forcing more rate cuts than currently expected. If inflation stays sticky, Papic says it will not “bring about the return of hawkish rhetoric that one would expect given Fed narratives throughout 2022 and (most of) 2023.”

Who Knows?

Will markets follow the path that logic suggests, or will fear of recession and its consequences lead to yet another postponement of the most forecast recession in history? Who knows? I’ll be back this time next year to tell you.

In the meantime, how do investors behave? If Papic is right, how do you “invest accordingly?”

BCA Research suggest in their outlook for 2024 that overweights to the investment themes of cybersecurity, healthcare, as well as a recommendation not to fight AI and buy tech, will be the way to go. In addition, their longer term recommendations include “small and diversified allocations to themes that represent nascent technological developments, such as Digitalisation and Migration to the Cloud, EV Revolution, Cybersecurity, Green and Clean and Robotics.”

Without knowing it, they have pretty well summarised what the IDAD Future Wealth Fund is all about.

Wishing a peaceful and happy holiday season to you all