How to Plan for 2024

An illustrated calendar for investors facing a chaotic world -- and a few modest suggestions how each of us can help restore order.

Sometimes at “Leading Thoughts,” we end our publication year with our best wisdom on the state of the global economy which usually turns out pretty dull. Sometimes we try wild predictions about future investment outcomes that would never make it past a compliance department. Today, we offer some guideposts that investors and corporate executives should watch as they navigate some of the trickiest political and economic waters we have seen in a while.

And, in a moment when inspiration is scarce, we offer a couple thoughts on how to help bend the “arc of the moral universe” toward justice. If that seems like a tall order, just think of them as ideas for random acts of kindness that will inspire the rest of us.

JANUARY

Barely back at their desks from New Year’s festivities, diplomats and investors will be watching the outcome of Taiwan’s January 13 presidential election. Chinese officials have already labeled Lai Ching-te, the Democratic Progressive Party’s candidate who leads in most polls, a “troublemaker” for his loose talk about independence. Taipei Mayor Hou Yu-ih of the opposition Kuomintang has been closing the gap, but his victory won’t guarantee calm relations with an increasingly inflexible leadership in Beijing. The result won’t trigger anything like an invasion, but watch for a rapid escalation of Chinese threats and military maneuvers. Watch also for U.S. sanctions in response and a further unraveling of the relationship between Washington and Beijing after a briefest of interludes.

FEBRUARY

With Europe on the brink of recession, pressure will continue to build on the European Central Bank to start cutting rates from the current record high of 4%. Energy prices have fueled most of the region’s inflation since Russia’s invasion of Ukraine, but inflation rates have been stabilizing and the Harmonized Index of Consumer Prices that arrives on February 22 should give the central bankers comfort that they can begin to ease. While ECB President Christine Lagarde insisted that cuts were not even discussed at its meeting last week, weaker growth data early next year will force the conversation.? If they haven’t already done so by then, watch for European markets -- and the euro -- to bounce.

MARCH

China will release its official 2024 growth target in March. Compared to last year’s COVID-lockdown weakness, this year’s target of 5% was relatively easy to meet. But any target in the same range for next year will require a substantial re-acceleration. The government has already turned to more fiscal stimulus to support local governments awash in debt and the People’s Bank of China has eased credit to address the woes of struggling property developers. But sustained growth ultimately depends on a new economic model that relies less on infrastructure and exports and more on domestic demand. At best, this will be challenging amid tighter domestic political controls and rising tensions with key trading partners.

APRIL

The April 5 jobs report will complete the picture of the U.S. economy for the first quarter. With more inflation surprises and job losses likely, don’t expect that Jerome Powell and his colleagues will still look as good as they did last week amid glowing headlines celebrating a soft landing. Unemployment is a classic lagging indicator, but if it’s still near 4% by early spring, the U.S. will be looking robust, especially in comparison to other major economies. Of course, markets will likely have priced all this in and the real question for investors will be how much more good news they can reasonably expect in the months ahead.

MAY

Moderate oil prices would certainly count as good news, but there are no guarantees. Weaker oil prices recently reflect both slowing global demand and rising supply from non-OPEC producers like the United States, but the test for next year will come as the summer travel season starts in the Northern Hemisphere. Just how high seasonal prices may reach early next summer will reflect both judgments about the strength of the world economy and risks to supply from rising tensions in the Middle East and continuing efforts to enforce sanctions on Russian oil exports. If energy costs spike unexpectedly, central banks will be slower to ease, and markets will react badly.

JUNE

Elections to the European Parliament don’t usually carry global economic implications, but next year they will serve as a crucial deadline for agreeing more flexible rules for EU budgets and debts. Europe suspended deficit limits during the pandemic and governments now seem close to a deal that would set guidelines for how fast budget deficits above 3% need to be closed while still reserving resources for government investment. The EU faces enormous spending challenges to speed its energy transition and boost defense budgets, so it will be important to watch how well its politicians agree on more malleable spending limits without opening a divisive debate to amend the Maastricht Treaty.

JULY

This year’s financial markets are set to deliver excellent returns amid all that “soft-landing” talk, but next year will be more challenging given how cheery the recent mood has turned. By next July, we will get Second Quarter earnings for the S&P 500 and see if the bullish top-down expectations are visible in the bottom-up results. Ever optimistic analysts are currently predicting healthy 11.8% growth in earnings per share with especially strong results from pharmaceuticals, communications and information technology. Revenues are only forecast to grow 5.5%, suggesting that margins will expand as wages and input costs stabilize. If firms beat these forecasts, there’s probably more upside for stocks, especially as falling yields can help justify even steeper valuations above the market’s current P/E ratio near 25.

AUGUST

Nothing that is both significant and scheduled happens in August.? Of course, historically this is the month that has brought us World War I, atomic bombs on Hiroshima and Nagasaki, the construction of the Berlin Wall, the coup against Soviet leader Mikhail Gorbachev, Iraq’s invasion of Kuwait, Hurricane Katrina and Standard & Poor’s first downgrade of U.S. credit. It’s also on average a dismal month for the stock market. Brace yourself.

SEPTEMBER

Atlantic hurricane season peaks in mid-September, which makes early fall a good time to assess the rising costs from climate-related disasters tracked by the U.S. National Oceanic and Atmospheric Administration, including storms, floods, wildfires and droughts. With risks trending higher, businesses face steep new expenditures on weather damage, insurance premiums, tighter regulation and investments in resilience. Corporate margins may still expand next year as analysts expect, but the pressures from climate-related costs are mounting rapidly.

OCTOBER

Russia will host the next BRICS summit in Kazan, which makes October a natural time to assess any major shift in the battle lines in southeastern Ukraine. The gathering itself will reflect just how much Russia has managed to emerge from global isolation as Vladimir Putin receives the leaders of China, Brazil, India and South Africa, along with newly admitted members that include Saudi Arabia and Egypt. If the battlefield remains stalemated, expect that the global debate will have shifted substantially from backing Ukraine “for as long as it takes” in President Biden’s pledge to mounting pressure on Kyiv to come to some kind of “land-for-peace” settlement with Moscow.

NOVEMBER

Ah, yes. America’s election will likely present one of the starkest choices in its history with Joe Biden facing a rematch against Donald Trump. Polls show voters disapprove strongly of both candidates, but Trump has been leading Biden in recent head-to-head surveys. Criminal trials and potential health challenges are just some of wild cards that may shape the outcome. Meanwhile, assessing what it may all mean for U.S. economic policy and markets will be even more complicated if Democrats claim control of the House and lose the Senate. A re-elected Trump will likely push for lower taxes and less regulation, which may boost markets as it did in 2017, but his open attacks on government institutions may rattle investors more. Whoever wins will also face a Fed chair decision when Jerome Powell’s term runs out in January 2026.

DECEMBER

The European Union just agreed the world’s first comprehensive legislation to regulate the use of artificial intelligences, and its first substantial measures will take effect next December.? The law purports to strike a balance between protecting personal privacy and democratic institutions, while leaving space for business innovation and commercialization. Firms found to violate its measures may be fined up to 7% of their global revenues, but the larger question for anyone trying to incorporate AI into their business model is just how much updating this law will need by the time in goes into full effect in 2025.

And a few suggestions for you, dear reader:

Next year will deliver challenges that no individual or firm can do much to alter, and the trends don’t look especially promising. But each of us can act in ways that help on the margin and the cumulative effect may just keep it all from going off the rails. My partial list includes:

·?????? Find someone who disagrees with you – and listen to them.

·?????? Give blood.

·?????? Convince someone who claims it doesn’t matter to vote anyway.

·?????? Tip at least one person lavishly.

·?????? Don’t forget your local food bank.

·?????? Tell your member of Congress what you think (and remember they don’t hear from nearly enough reasonable people like you).

·?????? Post your own suggestions for random acts of kindness on your favorite social medium.

Thanks for reading this newsletter and, if you like it, please recommend it to a friend.? And Happy New Year!?