9 big stories to watch in 2024 🔭

Catch up quick on the major narratives driving markets 📋

(Photo by Nik on Unsplash)

Wall Street economists and market strategists entered 2023 expecting a recession and predicting unusually weak returns for stocks.

What we got was resilient economic growth and a 24% surge in the S&P 500.

Today, everyone’s a bit more optimistic. Many economists expect continued growth, albeit slower growth. Those who warn of recession add that any downturn is likely to be short and shallow. Meanwhile, market strategists are looking for average stock returns.

Let’s take a closer look at the big stories driving these 2024 forecasts.

1. Labor market: How cool will it get? 🥶

U.S. employers have added jobs for 35 consecutive months. But the pace of job creation has been slowing steadily over the past two years.

This cooling trend is echoed in the falling level of job openings.

According to the BLS’s Job Openings and Labor Turnover Survey, employers had 8.73 million job openings in October, down from the March 2022 high of 12.03 million.

The ratio of job openings relative to the number of unemployed people is near prepandemic levels. (Source: FRED via TKer)

During the month, there were 6.50 million unemployed people — meaning there were 1.3 job openings per unemployed person. This ratio — one of the most obvious signs of excess demand for labor — is almost back to down to prepandemic levels.

While it is true that the level of job openings remains high, it’s nowhere near its level earlier in the economic recovery. In other words, labor demand isn’t as hot as it used to be.

For more, read: The hot but cooling labor market in 16 charts 📊🔥🧊

2. Inflation: Is the worst behind us? 🎈

A wide variety of inflation metrics have been improving significantly since mid-2022.

Importantly, the core PCE price index — the Federal Reserve’s preferred inflation gauge — is hovering near the central bank’s target 2% level.

According to BEA data, the core PCE price index rose by just 0.1% month over month in November. On a six-month annualized basis, that metric is at a very comfortable 1.9%.

The Fed’s preferred measure of inflation is at target levels. (Source: BEA via @RenMacLLC)

While it’s great news that inflation rates are near target levels, Fed Chair Jerome Powell has made clear that he’d like to see those rates stay there for more than just a few months before declaring any kind of victory.

For more, read: The end of the inflation crisis 🎈

3. Monetary policy: Tight for how long? 🏛️

The Fed has been tightening monetary policy by hiking interest rates over the past two years in its effort to bring inflation down.

With inflation rates near target levels, most agree that monetary policy doesn’t need to be tightened further. In fact, most experts, including many central bankers think the Fed will actually begin to cut interest rates in 2024.

The Fed spent much of the past two years hiking rates. Are rate cuts near? (Source: FRED via TKer)

Generally speaking, looser monetary policy would be good news for the financial markets. However, there’s also the possibility that future rate cuts are a response to significant deterioration in economic data, which would be bad news.

Of course, any actual decision to cut rates will depend on the direction of the incoming economic data including data on growth and inflation.

For more, read: Views on the economy have shifted dramatically over the past year 🪞 and When the Fed-sponsored market beatings will end 📈

4. Sentiment: Finally a vibe-spansion? 🙃