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What could 2024 mean for investors?

Compared to the noisy worldwide economic and political conditions of 2020-2022, 2023 has appeared to be a more subdued year.  We have become weary of the constant barrage of ‘shock and awe’ directed at us through the media over the last few years. However, despite what the daily newspaper headlines might have you believe – the world has kept turning and life goes on. So, what could 2024 mean for investors?

The challenges of 2023

The biggest headline in financial services over the last year has been the ongoing battle to get inflation back under control.  Inflation, for most of the last 12 months, has been at levels that we’ve not seen in decades. Fortunately, it’s finally starting to come back down again. Additionally, we’re expecting to see interest rates gradually reduce next year as well. All of this is good news for borrowers. However, it’s not so welcome for those living on their savings and have finally been enjoying some decent interest rates after many years of virtually zero returns.

Unwary Investors

Conditions like we’re seeing now are potentially hazardous for unwary investors. Most of us are very familiar with day-to-day market volatility. Even the occasional big dips that can happen from time to time.  These might be triggered by major world events, such as  in Ukraine and Gaza, or sometimes even closer to home. Political events, such as the impending General Elections in the UK and US, are being hyped up by the press.  All these things cause humans to behave irrationally.  Human behaviour is one of the biggest influences of a company’s valuation and share price.

Emotions and market behaviour

Emotions play in significant role in financial decision-making. Confidence and fear are powerful forces that can cloud judgment and lead to irrational choices.

During “bull” markets, when prices are rising and the stock market is going up, investors may become excessively optimistic and invest in assets that are probably already over-priced by the time they’ve invested in them. Conversely, during “bear” markets, when prices are decreasing and the stock market is going down, fear can drive investors to panic and sell their holdings at artificially low prices, exacerbating market downturns.

At some point in the economic cycle, there is always bad news.  A big story in the news, or we a period of high inflation, high unemployment, or political instability, even the weather, have an effect on the stock market on a daily basis.

Historically, when the Bank of England has cut interest rates, following the end of a period of interest rate rises, returns have been particularly strong in the 12 months that follows it:

 

  • Following the first cut in rates in the 1990s, the MSCI UK Index returned 46.1% over the next 12 months.
  • In 1976, after interest rates were cut from 15%, the UK market subsequently rose 95.8%.

While not all moves are as extreme and some periods were impacted by global events, there is clear evidence that markets have historically provided some of their strongest returns during the early part of a rate-cutting cycle.  Although, as always, past performance is not an indication of future returns.

This evidence supports the argument for medium- and long-term investors to stay invested. Regardless of what interest rates you can currently get at your Bank or Building Society, in

The chart[1] below shows that, if just the 10 best days in the market are missed, investments could be almost half the value compared to remaining invested in the stock market and trusting that markets work – even when everything else seems to be in chaos

Initial investment

The Emoji Guide to Money

The following graphic is the Emoji Guide to Money. It plots the investor’s emotional journey during the humps and dips in the investment cycle.

Emoji Guide to Money

As you can see, the successful investor remains totally calm throughout the whole market cycle.  They don’t react one way or another, irrespective of what the market is doing, because they know that markets going up and down is normal.  And that overall, the trend is for the market to go steadily upwards.  It must, otherwise the basis for capitalist economies all over the world would collapse.

Looking to 2024, we continue, therefore, to remain confident that over the medium- to longer-term, a strategic approach to asset allocation with a diverse portfolio spreads risk and gives greater prospects for above inflation returns for those investing over the medium to long term. Find out more about our investment services and how we can help you make the best investment decisions in 2024.

In terms of where we are on the Emoji scale at the end of 2023, our experience is that it’s somewhere around here:

Where we are

…just starting to pick up again after the worst of the inflation and market volatility have passed. 

This isn’t to say that we’re immune from any bad news filtering into the market soon – it is entirely unpredictable in that respect. However, there is reason to be optimistic in 2024 for investors. All being well, the steadier returns and progress that has been made already in 2023 will continue. 

Any ‘recession’ that the UK may enter is very likely to have a soft landing, and a more positive progress and confidence could return to the market over the next 12-14 months, as we continue with the current economic recovery.  HSC Financial remain available to help with any of your planning needs as we enter the new year.

[1] Source: Quilter Investors as at 30 June 2023. Total return over period 30 June 1993 to 30 June 2023 based on initial investment of £10,000 into the MSCI All Country World Index.

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