US 10 year yields
US 10 year yields

JP Morgan Private Bank is out with its outlook for 2024 and they mostly paint between the lines, seeing inflation coming down and equities headed to new highs. If you're looking for optimism

1. Inflation's Cooling, but Stay Sharp:

"Inflation will likely settle," the report states, but warns against complacency. Equities and real assets are recommended as hedges against this lingering inflation threat. "We expect developed world inflation will similarly settle between 2% and 2.5%, and with more variability than existed in the 2010s"

SPX during 2 to 3 per cent inflation

2. Bonds - The New Contenders:

"Bonds are more competitive with stocks," the report declares, signaling a shift in the investment landscape. This isn't just a subtle change – it's a "rate reset," and they're urging investors to lock in these higher yields. They also warn "this is as good as it gets" for cash yields and urge clients to increase allocations to non-cash assets. "Holding more cash in the near term may not be a poor decision, but it likely isn’t the best one either."

3. Equities - Marching to New Highs with AI's Beat:

The report boldly claims, "Equities seem to be on the march to new highs." Why? AI is the game changer here. The report doesn't just see AI as a tech trend; it's a fundamental reshaper of market dynamics​​. The report notes, "incorporating AI and machine learning into our processes could deliver more than $1 billion in impact this year." It's a significant bet on the transformative power of AI across sectors​​.

4. Credit Stress - Contained but Crafty:

There's a warning about "pockets of credit stress" that are likely to remain limited. It's a heads-up to investors to stay vigilant in the credit arena, particularly in areas like real estate and private credit​​.

5. The Big Shift to a New Interest Rate World:

The report reminisces about a time when "nearly 30% of all global government debt traded with a negative yield." But now, we're in a new era with yields soaring past 4%. It's a historic shift and a game-changer for investors, offering more choices "than at any time since the global financial crisis"​​.

6. Navigating Inflation with Equities and Real Assets:

Tackling inflation isn't just about bracing for impact; it's about being strategic. The report suggests equities, noting, "US consumer prices have risen almost 19%. S&P 500 earnings are up over 35%." They also highlight the allure of real assets in this environment, stating, "as commodities and labor become more costly, existing buildings tend to appreciate"​​. Where to buy equities? "While we prefer the U.S. stock market in 2024, low valuations elsewhere suggest that prices already anticipate bad news for corporate profits, limiting the downside for stock performance."

7. Credit Markets - Tight but Tolerable:

Higher interest rates are squeezing credit availability, but the report sees this as a manageable issue. They're not expecting these stresses to spiral into a 2024 recession, a somewhat reassuring note for investors eyeing the credit landscape warily

India: A Promising Spot

In most emerging market economies, corporate earnings have failed to keep pace with GDP growth but JPM notes that India is a striking exception. They see 10% nominal GDP growth for the next 10-15 years. " In our view, this makes India one of the most compelling investment destinations in emerging markets"

Read the report here.