2024 Global Market Outlook – Q4 update: Definitely Maybe

Executive summary:

  • Our base-case scenario is for the U.S. to achieve a soft landing, but there’s a lesser chance that the slowdown overshoots into a recession.
  • We expect the economic outlook to continue improving in Europe as growth increases and inflation moderates.
  • We have a neutral view on equities, with an emphasis on stock selection.

The latest data suggests the U.S. economy is headed toward a soft landing rather than a recession. With Federal Reserve (Fed) rate cuts underway, markets are backing this view, creating risks for portfolios if a recession does materialize. We believe weekly U.S. jobless claims may provide investors with the best guide to which scenario is playing out.

Key market themes

1990s nostalgia is back with the announcement of a reunion tour by Britpop band Oasis. Investors are hoping for another 1990s throwback in the shape of an economic soft landing, since the last time the U.S. economy avoided a recession after aggressive Fed tightening was in the mid-1990s.

The economic data indicates a soft landing is likely, but as Oasis declared in the title of their 1994 debut album, it’s Definitely Maybe. This is because although inflation is declining, wage growth is moderating, and labor market pressures are cooling, recession risks still appear more elevated than normal due to potential lags in the impacts of the Fed’s 2022-23 rate-hiking campaign.

Importantly, the Fed has started easing before clear signs of economic stress have emerged, and our base-case scenario is that the U.S. economy will achieve a soft landing. But we do think there’s a lesser chance that the slowdown could overshoot into a recession if U.S. consumers rein in their spending due to a weaker job market. This could cause companies to pull back on spending or hiring, which in turn could trigger further consumer caution.