The global stock market will experience a rebirth amidst thorns in 2023! It aims to soar with the favorable wind in 2024.
The benchmark stock indices of the US, the S&P 500 Index, and the Nasdaq 100 Index, known as the "global technology stock indicators," have risen by approximately 20% and 46%, respectively, since 2023. Benefiting from the AI investment frenzy sparked by the emergence of ChatGPT last year, NVIDIA (NVDA.US) has become the hottest investment in the global stock market, with an astonishing 220% gain so far in 2023.
The "MSCI All Country World Index" (MSCI ACWI), representing the global stock market, has entered a rebound mode in 2023, with November marking the best monthly performance in over three years. The MSCI ACWI rose nearly 9% in November, achieving the best monthly performance since the 15% surge in November 2020. The index covers nearly 3,000 companies' stocks from 23 developed countries and 25 emerging markets, accounting for approximately 85% of each market's free-float adjusted market value.
Will 2024 be better for global stock market investors compared to 2023? According to the latest survey report by Bloomberg Markets Live Pulse (MLIV Pulse), the answer is affirmative.
The global stock markets, which have emerged from their darkest moments, are expected to continue their rebound in 2024.
2023 can be considered a year of "rebirth" for global stock market investors under heavy pressures such as high interest rates. The aggressive rate hike cycle initiated by central banks worldwide, including the U.S. Federal Reserve in 2022, pushed global stock markets into their darkest moments. In 2023, the AI investment frenzy that started in the first half of the year ignited endless imagination about tech stocks. Apart from NVIDIA's impressive performance, leaders in generative AI such as Microsoft (MSFT.US), Amazon (AMZN.US), and Meta Platforms (META.US) have seen gains of 56%, 75%, and even 170%, among many other tech stocks with similar performances.
Although some investment institutions warned of the possibility of stocks and other risk assets plummeting due to a recession in 2024, the majority of MLIV respondents predict a better performance for the global stock market next year. Among the 595 institutional and retail investors participating in the MLIV survey, an overwhelming 63% of retail investors expect stronger performance in their personal investment portfolios.
MLIV's survey reveals that this optimistic sentiment is based on the aggressive expectation that the Federal Reserve will cut interest rates by more than 100 basis points next year, continuing the rebound trend in global stock and bond markets seen in 2023. The current interest rate futures market expects the Fed to cut rates by at least 125 basis points next year, far higher than the expectation in November, clearing obstacles to declining U.S. bond yields and the continuous rise of risk assets such as stocks.
Additionally, recent annual outlook reports indicate that Wall Street is also very optimistic about next year's stock market prospects. The predictions for the S&P 500 Index, as the benchmark index of U.S. stocks and with a significant weight in the MSCI Global Index, reaching historic highs next year have been growing stronger recently. As of April 2023, U.S. stocks accounted for approximately 56% of the MSCI All Country World Index.
Strategists from Deutsche Bank Group AG and BMO Capital Markets have set the most optimistic target points on Wall Street to date. These two major institutions expect the S&P 500 Index to reach 5,100 points by the end of 2024, implying an approximately 11% increase from last week's closing. It is worth noting that Deutsche Bank and BMO Capital Markets are among the few Wall Street investment institutions that predicted the current rebound trend in the U.S. stock market. The S&P 500 Index reached its all-time high of 4,769.56 points in January 2022.
Strategists led by Lori Calvasina from RBC Capital Markets and Savita Subramanian from Bank of America expect the S&P 500 Index to rise to 5,000 points next year. Strategists from Goldman Sachs Group, one of the largest Wall Street banks, stated in their report that the S&P 500 Index, the benchmark index of U.S. stocks, is expected to continue its upward trend in 2024, and investors should maintain their exposure to stock assets, even during market fluctuations. In their latest report, Goldman Sachs emphasized that the returns of U.S. stocks next year will be concentrated in the second half of 2024. The expectations from Goldman Sachs' leading stock strategists, led by David Kostin, seem relatively moderate, predicting the S&P 500 Index to close at 4,700 points next year.
The main threat to the continued rebound in the stock market: Sticky inflation.
As the optimistic sentiment towards the global stock market is mainly driven by expectations of a future rate cut by the Federal Reserve-the market is betting on the earliest rate cut to start in March next year-the respondents generally recognize that the sticky inflation rate in the United States is the biggest threat to this situation, as it would prevent the Fed from implementing rate cuts.
At the individual investor level, 49% of respondents believe that rising living costs in 2024 are the biggest risk to their personal financial health. Although the year-on-year inflation rate has been slowing down, prices for food, groceries, and electricity in the United States have skyrocketed by 25% since January 2020, second-hand car prices have risen by 35%, and rent has increased by approximately 20%.
Furthermore, in the written comments of individual investors, unexpected medical expenses were cited as their biggest concern, along with adverse trends related to the insurance and financial industry investment compensations.
The hottest investment theme for 2024: AI.
Respondents, including top global fund managers and high-net-worth individual investors, overwhelmingly believe that the continuous breakthroughs in AI will continue to drive the innovation and growth of various industries, leading to new investment opportunities and higher returns.The breakthrough in artificial intelligence (AI) technology is a long-term source of profit. The stock price stimulation brought by the wave of AI has far exceeded any other theme this year, even surpassing the impact on stock prices by "weight loss miracles" such as Novo Nordisk A/S and Eli Lilly & Co.So far, the "artificial intelligence theme" is believed by surveyed investors to be the heavyweight trend for asset allocation in the next decade, with a staggering 67% of MLIV surveyed investors choosing artificial intelligence over cybersecurity, which received recognition from about 20% of respondents. Weight loss drugs briefly became headlines this year, but only 8% of respondents chose to invest in this theme.
Niall Gallagher, one of the top-performing fund managers in the European market, manages a stock fund under GAM Investments. In a survey consultation, he stated that in the past few months, he has reduced his positions in Novo Nordisk by about half, partly in response to the surge in valuation of appetite suppressant drugs. Shares of Novo Nordisk, a pharmaceutical giant from Denmark, have surged by 50% in 2023, with a current total market value of nearly $450 billion.
Although Gallagher pointed out that there are many short-term speculative factors about weight loss drugs, he said he still holds a relatively optimistic view of Novo Nordisk's medium- to long-term prospects.
There is a huge difference in sentiment surrounding another major trend, investment in large technology companies such as Apple, Microsoft, and Google. A large portion of respondents (45%) believe that the main logic behind investing in large technology stocks in 2024 is to bet on performance growth, so stock prices will have a bright performance, while 16% of people believe that these stocks are "safe havens". However, 39% of investors still believe that this is a bad bet and think that the value of these stocks is overestimated by the market.
Marta Norton, Chief Investment Officer of Morningstar Wealth in the Americas, stated that the generous returns in the technology industry this year have made it "valued at or near the highest level of unattractiveness to investors among all industries in the United States". Marta Norton stated that Morningstar Wealth's analysis shows that the US technology industry has embraced the boost from artificial intelligence. The long-term revenue growth assumption for these companies is about 200 basis points per year, and profit margins will increase by about 300 basis points in 10 years. "This perspective means that we can expect a continued strong sentiment for large technology companies in 2024, but this is not the bet we want to make right now."
Looking ahead to 2024, most investors tend to allocate funds to the stock and bond markets.
Most investors (57%) expect to change their asset allocation in 2024, with 31% planning to invest more funds in fixed income assets such as bonds, and 26% of investors stating that they will increase the weight of stocks in their portfolio, with some funds coming from salary increases or annual bonuses in 2024. A high proportion of 52% of respondents indicated a preference for stock and bond assets, with most of their funds being invested in stocks or bonds.
However, cash assets still hold investment appeal. Nearly a quarter of respondents will keep most of their bonuses in cash, and 19% of respondents will use the bonuses to pay bills or repay debts. Only 5% of respondents expect to spend the funds on big-ticket items such as buying cars or going on vacation. Overall, 38% of respondents expect to increase their savings next year, while less than one-fifth of respondents expect to decrease their savings.
Most respondents said their bonuses or extra funds will be used to buy stocks or bonds.
Many MLIV respondents believe that the upcoming US presidential election is irrelevant to their financial situation, with 47% of respondents expecting no significant impact from the November election. Among the remaining respondents, 27% said their financial situation would be more severely affected if former President Donald Trump wins, while 26% of respondents said it would be worse if Joe Biden is successfully reelected.
Most respondents believe that the election battle between Trump and Biden is irrelevant to their personal finances.
A recent report by Lori Calvasina, head of US equity strategy at RBC Capital Markets, showed that the average increase in the S&P 500 Index in presidential election years is around 7.5%, lower than the trendline level and also lower than the typical return rate of 13.5% in the third year of a presidential term. Calvasina pointed out in the report that the typical pattern is weak at the beginning of the year, rebounding before autumn, market volatility approaching election day, and a rebound after the election. Calvasina's target for the S&P 500 Index at the end of next year is a historic high of 5,000 points.
"Any given US presidential election year is one of the important sources of uncertainty for the US stock market." Calvasina wrote in the report. "Considering all the unusual aspects of the 2024 US election, this seems to be an appropriate way to think about the political background in which the stock market will be in 2024."
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