In a surprising turn of events, the expected recession in 2023 never materialised, and inflation rates, which peaked in late 2022, continued to decline throughout 2023.

Economies, contrary to predictions, remained generally robust.

However, a newly released outlook for 2024 by BofA Global Research suggests that the story is far from over, with economists anticipating a continuation of disinflation and mid-year rate cuts by both the Federal Reserve in the US and the European Central Bank in the EU.

BofA Global Research outlook for 2024: what to expect

Candace Browning, head of BofA Global Research, comments on the unexpected turns of 2023: “2023 defied almost everyone’s expectations: recessions that never came, rate cuts that didn’t materialise, bond markets that didn’t bounce, except in short-lived, vicious spurts, and rising equities that pained most investors who remained cautiously underweight.”

1. Global shift to rate cuts

Claudio Irigoyen, head of Global Economics, foresees a global reduction in inflation, allowing central banks to implement rate cuts in the latter part of 2024.

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By GlobalData

Michael Gapen, head of US Economics, predicts the Federal Reserve’s first rate cut in June, with subsequent quarterly cuts of 25 basis points throughout 2024.

2. The 3Ps = the 3Bs

Chief investment strategist Michael Hartnett introduces the concept of the ‘3Bs’ – Bonds, Bullion & Breadth.

He anticipates that these three areas will dominate the bull markets of 2024, driven by the higher-than-expected risk of a hard economic landing.

Hartnett looks for a combination of bearish investor positioning, recessionary corporate profits, and easing policy – the ‘3Ps’ – before fully embracing a ‘bullish’ stance.

3. S&P 500 forecast and commodities outlook

Savita Subramanian, head of US Equity and Quantitative Strategy, remains optimistic about equities, projecting the S&P 500 to reach an all-time high of 5000 by the end of 2024.

Additionally, Francisco Blanch, head of Commodities and Derivatives Research, expects Brent crude to average $90, with OPEC+ continuing supply cuts and oil demand growing.

Lower rates are predicted to boost gold and trigger restocking in industrial metals.

Global landscape and emerging markets: looking ahead

Japan’s inflation persists:

In Japan, despite expectations of improvement in consumer spending and ongoing corporate reform, inflation is projected to remain above consensus, presenting a positive outlook for the country.

Rate cuts and a peaking US dollar benefit emerging markets:

The BofA Global Research team anticipates positive returns in emerging markets following the last Federal Reserve hike.

China’s economic growth is expected to stabilise, and the fundamental FX team is more bearish on the USD than consensus, foreseeing benefits as the Federal Reserve slows down and cuts rates.

Navigating economic challenges in 2024

Seek quality yield in credit:

Facing potential challenges in rates, earnings, and issuance in 2024, credit strategists at BofA Global Research recommend seeking quality in investment-grade credit.

They believe it offers the best relative value, with loans offering more carry than high yield.

Slowing investment spend a drag on US economic growth:

While the impact of fiscal investment programmes is expected to fade, US economists at BofA Global Research foresee a slowdown in consumption without a crash.

Secular tailwinds exist for capital expenditure, but cyclical headwinds pose challenges.

US ten-year Treasury yield outlook:

Mark Cabana, US rates strategist, provides a cautious outlook for US ten-year Treasury yields, citing a deteriorating US fiscal stance, a riskier duration/inflation scenario, and a challenging net international investment position.

Policy uncertainty on the horizon:

As elections loom in countries representing more than 60% of global GDP, BofA Global Research warns of heightened policy uncertainty due to increasing political polarisation, impacting fiscal consolidation and rates.