Equity Outlook: Three Questions for Investors in 2024

It’s hard to chart a course through equity markets in times of uncertainty. Here are our thoughts on some of the big questions on investors’ minds today.

Global equity markets posted healthy gains in 2023, but investors enter the new year with many concerns. As macroeconomic uncertainty lingers after a year of extreme market concentration, equity allocations should be prepared for a range of scenarios.

The last two years were practically a mirror image for equity markets. In 2023, the MSCI ACWI Index of global stocks rose by 22.2% in US dollar-terms, after falling by 18.4% in 2022. Yet the market trajectory was anything but smooth. First-half gains were marred by volatility from US banking failures. Then, after peaking in early August, the MSCI ACWI Index fell through October before recovering through year-end (Display). We believe that market fluctuations in the second half of the year reflect investors’ lack of conviction in the path of macroeconomic growth.

Stock Markets Gained as Magnificent Seven Dominated Returns

Japanese stocks performed well, as the economy and companies benefited from the long-awaited impact of Abenomics reforms, as well as a reversal of two deflationary decades and a weaker yen. Emerging markets underperformed, with Chinese stocks suffering a particularly tough year. US market gains were dominated by the so-called Magnificent Seven (Mag 7)—a group of giant companies perceived to be big winners of the artificial intelligence (AI) revolution. These stocks accounted for 58% of the S&P 500’s returns in 2023.

Heavily concentrated returns reflected lopsided style performance. Growth stocks surged by 33.2, eclipsing value and minimum-volatility stocks (Display). The technology and consumer-discretionary sectors—home to the Magnificent Seven—towered over the market, along with communications. Utilities, consumer staples and healthcare were the biggest laggards.

Technology and Growth Stocks Towered over the Market