What Does 2024 Hold For Your Stock Market Investments?

As 2023 comes to an end, investors are already looking towards 2024 and the prospects for the UK stock market. Despite the trials and tribulations of recent times, the FTSE 100 is down just over 1% in the year to date. So, what does 2024 hold, and what will be the major influences over the next 12 months?

Economy

While the UK economy performed admirably in 2022, with GDP increasing by 4.1%, the forecast for 2023 is around 0.5%, with a modest increase to 0.6% for 2024. At this moment in time, a recession appears unlikely, but with limited growth, sector and stock selection will play an even more critical role than usual with stock-market investments.

Interest rates

There is no doubt that interest rates will play a significant role in the performance of the UK stock market in 2024. High interest rates impact not only consumer spending but also business investment, as well as the property market. While markets are expecting a downward movement in interest rates towards the second half of 2024, some experts have shifted their focus to the first half of the year.

Inflation

The inflationary pressure on the cost of goods and services, not to mention wage inflation, has significantly impacted company profit margins. Even though inflation has fallen considerably of late, due to the time lag between company financial year ends and reporting to the market, the headline figures may make for difficult reading. In the current situation, it is more important to focus on company expectations for the future.

Politics

As we approach the 2024 US election, which appears to be on a knife edge and a potential general election in the UK, politics could play a major role in stock-market movements in the next 12 months. The situation in the UK is very different from the US, with the polls suggesting a change in government and many in the city proactively supporting a switch to a Labour government.

There will likely be increased volatility as we approach voting day for both elections, with a degree of uncertainty about the immediate future. While historically, markets have expressed a preference towards Conservative governments, focused on free markets and reduced regulations, times may be changing.?

Diversification

Recently, there has been renewed interest in fixed-interest investments as the base rate increased from 0.1% to the current level of 5.25%. If rates have peaked, we will likely see interest switching to equities, although it is crucial to maintain a degree of diversification. A mix of defensive stocks, growth companies, and even a degree of funds on deposit will help you maintain an element of balance in your portfolio.

There is an ongoing debate about the optimum number of investments required to provide a statistically relevant level of diversification. Some experts believe that ten varied investments are sufficient, while others favour the traditional 20 to 30 stock portfolio to achieve meaningful diversification.?

The reality is that the greater your diversity across companies and sectors, the less impact the performance of one or a small number of shares (or sectors) will have on your portfolio. In theory, this should limit your downside, but in practice, it is also likely to limit your upside.

Defensive sectors

While conscious that stock markets tend to project company valuations nine months in advance, there are several sectors to consider if you are looking at defensive investments. These include:-

• Utilities
• Consumer staples
• Healthcare

These companies provide products and services required daily, even if there is a degree of discretionary spending.

Growth sectors

When looking for long-term growth, as the economy starts to recover, several sectors will become more attractive to investors, such as:-

• Technology
• Communications
• Financial services
• Commodities

These are all areas where there is an enhanced degree of discretionary spending for consumers and businesses. Consequently, when economies start to grow, there will be improved demand for these business areas.

Market outlook

Generally, stock markets look at least nine months in advance when valuing stocks today. This is why you can often see stock markets recovering while the media headlines suggest economic difficulties - they are looking beyond the problematic times towards the eventual recovery.?

This can create conflict for some investors, with media headlines creating an environment of doom and gloom while markets suggest otherwise. In this situation, it is important to:-

• Maintain a long-term view
• Avoid panic buying or selling

The benefits of an experienced investment adviser certainly come to the fore in challenging times, allowing investors to maintain long-term focus while appreciative of short-term issues.

Summary

It is safe to say that the last few years have been challenging regarding the economy, interest rates, inflation and the cost of living. Interestingly, in the year to date, the FTSE 100 is only down slightly despite the pessimistic view of many experts. Over the last five years, the FTSE 100 is up by around 10% which also takes in the significant impact of the pandemic and the financial challenges which followed.

If you would like to review your investments and broader finances, please contact me, and we can look at the options and opportunities for the future.