Investing forecast 2024: which stocks to pick, economic outlook & more

Our round-up of what leading financial advisers, economists and fund managers believe will happen over the next 12 months.

What can investors expect in 2024? Are stock markets going to soar or plummet?

Will we still be battling a cost of living crisis? Can we expect interest rates to fall?

Here we provide an overview of the key issues that are likely to face savers and investors over the coming year, along with some expert suggestions.

The UK economy has performed better than expected this year, but the outlook remains weak and vulnerable to shocks, according to the latest KPMG Global Economic Outlook.

Although headline inflation dropped to 4.6% in October due to lower energy prices, domestic factors such as firms passing on higher costs to consumers mean life is still expensive.

Yael Selfin, chief economist at KPMG UK, expects monetary and fiscal policies to act as a headwind to growth, with a sudden revival in productivity unlikely.

“This means that even the expected continuation of positive growth should not be celebrated prematurely, as the outlook is dominated by downside risks,” she said.

The FTSE 100 has hardly covered itself in glory during 2023, but there are reasons for optimism, according to Russ Mould, investment director at AJ Bell.

“It is possible to make the case for the UK’s premier stock market benchmark setting new peaks in 2024, despite political uncertainty ahead of the next general election, sticky inflation and low expectations for UK GDP growth,” he said.

While the blue-chip index of leading shares is only marginally ahead of where it was a year ago, Mould highlighted the boost provided by dividends, share buybacks and takeovers.

Meanwhile, more than two thirds of investment company managers believe global stock markets will rise in 2024, according to a poll conducted by the Association of Investment Companies.

“When it comes to the FTSE 100, 65% of investment company managers suggest the index will be above 7,500 compared to 35% who believe it will fall below this level,” it stated.

Ben Ritchie, manager of Dunedin Income and Growth Investment Trust, believes the mantra for 2024 will be: when the going gets tough, the tough get going.

“What worked well in the Covid recovery years may well not be the recipe that drives returns in the future,” he said.

“2024 will most likely be a challenging year but one that favours stock selection and that should be a positive for active managers of all styles.”

According to Annabel Brodie-Smith, the AIC’s communications director, it’s encouraging to hear most managers being bullish on short-term prospects for stock markets.

However, she acknowledged that no-one had a crystal ball.

“As always, it’s important for investors to focus on creating a balanced long-term portfolio which meets their needs – with the help of a financial adviser, if necessary,” she added.

Andrew McCaffery, global chief investment officer at Fidelity International, believes good investing always requires discipline, an open mind, and a willingness to react to facts as they change.

However, he pointed out this would be particularly crucial due to the global uncertainties.

“Investors will need to stay nimble in 2024, ready to navigate each twist and turn,” he said.

McCaffery highlighted the “exceptional run of elections” across the world during 2024, coinciding with a renewed interest in fiscal policy alongside the future direction of restrictive monetary policy.

“The world is always uncertain but this is one of those periods when it is not an exaggeration to use the phrase ‘regime change’,” he added.

According to Alex Tedder, head of global and thematic equities at Schroders, uncertainties will persist in 2024 and markets are likely to remain volatile.

“For equity investors a change in mindset is needed,” he said.

“This involves more diversification across regions (including a return to unloved markets such as Japan and the UK), more focus on the implications of structural change, and renewed attention to valuation, quality, and risk.”

Artificial intelligence, the digital economy and the move towards Net Zero are likely to be important trends, according to Steve Clayton, head of equity funds at Hargreaves Lansdown.

“AI is an emerging megatrend and it will drive efficiencies at previously unimagined rates,” he said.

“Anyone who doubts it will change things should take a look at Nvidia.”

Nvidia makes the chips that AI applications run on.

“Analysts are forecasting that in just two years, Nvidia’s annual revenues will have grown by over $60 billion,” he added.

Clayton also expects AI to help “turbocharge the power of the digital economy” by making things smarter.

“Deploying AI into real-world situations will lead to more digital equipment, from sensors to servers being required,” he explained.

The move to Net Zero, meanwhile, is already driving a lot of investment and legislation is already in place across major economies to ensure change will take place.

“Every industrial process, every day-to-day activity will need to be re-engineered to reduce energy intensity and material consumption even to get close to net zero,” said Clayton.

There will always be winners and losers on a stock level, even when the stock markets are stagnant or trending downward.

The key is obviously spotting which ones are likely to do well.

The reality is that 2024 will be a tough 12 months, despite the macro conditions being “more benign” than at any time in the last two years, according to a report from Liberum.

“We favour stocks offering value and scale,” it stated.

“B&M, AB Foods, & Card Factory all offer positive earnings momentum.”

The report also highlighted Frasers and NEXT as long-term structural winners taking market share.

“Wickes, Currys & Virgin Wines have low valuations relative to their earnings, cash flow and strength of their models,” it added.

Elsewhere, Baker Hughes, Coca-Cola and Lloyds Banking Group are worth considering, according to Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

With uncertainty in mind, she said it makes sense to focus on companies that offer more reliable revenue streams, or those that have wider economic moats (a term used to describe a company’s competitive advantage).

“A nod to quality within your portfolio may not go amiss while things are so up in the air.”

Baker Hughes, a provider of services and equipment to the oil and gas industry, will likely benefit from the fact that demand is unlikely to have peaked.

Coca-Cola has grown its annual dividend for 61 consecutive years, while Lloyds Banking Group is seen as having a more robust operation than some of its peers.

Darius McDermott, managing director of Fund Calibre, believes 2024 will be better than this year for corporate and government bonds.

“We recommend holding more general and flexible bond funds that will contain a spread of short and longer-dated bonds, such as the Allianz Strategic Bond and Jupiter Strategic Bond,” he said.

McDermott also highlighted the consensus view that growth will be sluggish as developed market economies adapt to the impact of higher rates.

Companies with strong balance sheets and market-leading positions, he pointed out, are likely to get stronger in this type of environment.

“These companies can use their competitive advantages to not only survive but thrive as they gain more market share,” he said.

“Our recommendation is the Rathbone Global Opportunities fund.”

Ben Yearsley, investment director at Shore Financial Planning, suggested Polar Global Insurance could be worth a look.

“It has had an exceptional few years, but insurance companies are benefitting from higher interest rates and good underwriting profits and there is no reason that can’t continue,” he said.

UK house prices have been rising in recent months – but are still lower than a year ago and industry observers aren’t overly optimistic about prospects for 2024.

Average prices nudged up 0.5% during November but are 1% lower on an annual basis, according to the most recent Halifax House Price Index.

Kim Kinnaird, director, Halifax Mortgages, believes values have held up better than expected, despite the wider economic headwinds.

“However, the economic conditions remain uncertain, making it hard to assess the extent to which market activity will be maintained,” she said.

“Other pressures – like inflation, the broader cost of living, overall employment rates and affordability – mean we expect to see downward pressure on house prices into next year.”

Major lenders have cut mortgages rates in the belief interest rates will fall faster than expected in 2024, according to Myron Jobson, senior personal finance analyst at Interactive Investor.

“Prospective homeowners will be looking to buy when both house prices and mortgage rates reach their lowest point, but the reality is no one short of a functioning crystal ball will know exactly when this will be,” he said.

Of course, history tells us that not all 12-month predictions prove correct, pointed out Andy Merricks, portfolio manager at IDAD.

“I did a quick search on the ones made last year and they were virtually all wrong,” he said. “Yet here we are again this year hanging on forecasters’ every word.”

Merricks pointed out that a number of important elections were due this year, including the United States and the looming prospect of former president Donald Trump making a return.

However, what happens is anyone’s guess.

“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,” he said.

The information included in this article does not constitute regulated financial advice. You should seek independent, professional financial advice before making any investment decision.

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