Why stocks will soar in 2024

BEARS are shrieking that higher-for-longer interest rates, global economic malaise and escalating regional wars will definitely doom this bull market in Singapore and globally. Wrong.

Markets move on what people do not widely know and watch for: surprises, positive or negative. This year, surprises will net to the upside – shocking everyone, like last year.

Hence, expect moderate double-digit 2024 gains for the Straits Times Index (STI) and world stocks as economic resilience and political tailwinds fuel a good-to-great year. Tech and big growth stocks should lead early – so shop globally – before a mid-year value shift brings a big, beautiful bounce to bank-heavy Singapore.

How to see it

First, a report card: My 2023 forecast saw a global bull market, inflation cooling, no deep global recession, and tech and other growth sectors leading. So it was.

World stocks boomed 21.7 per cent. Tech soared 50.7 per cent, powering US stocks up 24.4 per cent in Singapore dollars. Global bank failure fears weighed on early-year STI returns, while service outages and scandal plagued DBS of late.

Yet the index ended 2023 up 4.8 per cent – gaining till December, as fading recession and rate rise fears flipped the Big Bank tilt from weakness to strength. Bonds rose broadly in a late surge.

A sneaky truth about young bull markets: They are tougher to kill than almost anyone fathoms. If they reach one year – as this one did globally in October – they nearly always get a second birthday. Expect that.

Why? Start with burgeoning global economic resilience. Despite fears, world gross domestic product (GDP) grew in 2023.

Singapore’s GDP accelerated all year, culminating in Q4’s 2.8 per cent year-on-year growth. US GDP accelerated for much of 2023 to 4.9 and 3.3 per cent annualised in Q3 and Q4. Full-year US GDP growth was 2.5 per cent, speeding from 2022 – the opposite of what most foresaw. China’s 5.2 per cent full-year growth rejoined pre-Covid trend lines. The eurozone recession did not happen, despite countless predictions otherwise. Tiny contractions such as Germany’s were pre-priced, as proven by its stock market hitting all-time highs.

Meanwhile, inflation cooled big time. Despite December’s tiny uptick, Singapore’s Consumer Price Index (CPI) more than halved from the 7.5 per cent year-on-year peak in September 2022 to 3.7 per cent now. America’s 3.4 per cent year-on-year rate is nearing pre-pandemic levels. Inflation will keep easing irregularly, with western money supply growth ebbing.

Another bullish tailwind: politics. US politics turbocharged global stocks’ 2023 rise, as late-2022’s US midterm elections cemented gridlock – which is sweet music to markets.

A US presidential election year, which is routinely strong for stocks, is coming. Since reliable data started in 1925, US stocks climbed in 83.3 per cent of them, averaging 11.4 per cent gains in US dollars.

Moreover, when stocks were negative in US presidents’ second years (as in 2022), the subsequent fourth year (2024) was positive every single time since the Depression’s 1932 bottom – averaging 15.7 per cent returns. It is gridlock gold.

Singapore’s general election is too far away to weigh now. Yet, highly correlated developed markets mean US strength boosts city stocks, too. They rose in 62 per cent of US presidents’ fourth years in Sing dollars, averaging 19.2 per cent returns.

Gridlock gold

What is even better is that gridlock extends globally.

In Britain, deep internal divisions and an election due by 2025 – but probably happening sooner – has kept the government from doing much. Japan’s government is teetering over a financial scandal – also a recipe for little action. Spain’s flimsy parliamentary coalition government is barely bandaged together.

The Netherlands will take months to form any government after November’s gridlocked election. Germany’s coalition is bickering non-stop over budgets.

Such a global political landscape is endlessly noisy rhetorically but devoid of big policy shifts. That extends the status quo worldwide – a reality that stocks love.

Tech and other big global growth stocks should continue leading early in 2024, tied to still-low growth rates.

Shop outside Singapore, seek US tech and European luxury goods. But stay alert.

As resilient global economic growth becomes increasingly apparent later on and short-term interest rates start falling relative to long-term rates, value stocks should lead.

This is because bank lending will become more profitable, loosening lenders’ purse strings.

Marginal lending increases always help value firms the most, given their weaker balance sheets and as volatile, economically sensitive earnings flows render them more dependent on bank loans. They are like little piggies at the slop trough, benefitting from more slop. They generally lack big growth companies’ pristine balance sheets and fat gross margins that generate cash to fund growth.

City stocks – with nearly half their market cap in banks and another 14 per cent in value-centric industrials – should roar and soar later in 2024. Europe’s value-heavy market is expected to do the same.

Crucially, though, this bull market does not need rate cuts. Global stocks’ surge since 2022’s lows – despite US Federal Reserve and Monetary Authority of Singapore “tightening” – proves it.

Well-known, pre-priced worries cannot kill this young bull market. That would take a big, stealthy shock; I see none lurking now. Stay bullish – but nimble – in 2024.

The writer is the founder, executive chairman and co-chief investment officer of Fisher Investments, an independent investment adviser serving both individual and institutional investors globally