I will continue to share 2024 outlooks as they come across my desk. If you don’t already, please subscribe to ensure you receive them.
Morgan Stanley has released its 2024 Global Strategy Outlook.
Here are the key takeaways from the report (directly quoted):
While many assets are already fairly priced for a soft landing, 2024 remains a good year for 'income investing'. Opportunities abound in high-quality fixed income – DM government bonds, IG credit, agency MBS, and senior tranches of securitized credit. Unlike the last two years when we had strong RoW > US, we expect that US assets will find 2024 easier, and EM markets less so.
Global Equities – Japan Leads, Look for US Earnings Recovery:
Japan reflation and ROE improvement are secular positives while Europe and EM growth likely disappoint.
We expect US earnings growth to trough in early 2024 and rebound thereafter.
We recommend a barbell of defensive growth and late-cycle cyclicals.
We see the S&P 500 at 4,500 at end-2024.
G10 Rates – Overweight Duration:
Easing drives yields lower in the US, Europe, the UK, and the dollar bloc.
Curves steepen globally, except in Japan.
With the BoJ eventually delivering a rate hike, we expect JGB long-end yields to remain near current levels even as other global benchmark yields decline.
We forecast UST 10Y at 3.95%, DBR 10Y at 1.80%, and JGB 10Y at 0.90% by the end of 2024.
G10 FX – USD Peaks in Spring but Further Weakness Contained:
USD strength continues through 1Q, as growth and rate divergence continue and USD's defensive characteristics remain alluring.
JPY outperforms on the back of the BoJ exiting YCC and NIRP.
We see the DXY at 107 by end-2024.
EM Fixed Income – Still Cautious:
USD strength and continued fund outflows lead EM credit spreads to go sideways.
We would hold off on adding more beta risk until spreads are wider.
We favor IG over HY in sovereign credit and see limited prospects for a recovery in EM local bonds without a recovery in USTs.
High US rates will likely cannibalize broader EM fixed income flows, and so we need US rates to turn lower to prompt inflows to EM.
Corporate Credit – Up-in-Quality Time:
IG credit is part of a 'constellation' of reasonably priced high-quality fixed income, supported by a Fed/ECB pause and soft landing.
For leveraged credit, still-high rates and slower growth erode credit quality, keeping defaults and downgrades above average.
We expect more tiering and wider spreads.
We prefer IG over HY across the US, Europe, and Asia, and BBs over Bs across bonds and loans.