iShares 2024 Year Ahead Outlook

• We are likely at the end of the Fed’s hiking cycle, but don’t anticipate rate cuts until the second half of 2024.
• Investors piled into cash in 2023. But staying there risks missing the returns in stocks and bonds often associated with the ‘pause period’ between the last Fed hike and the first cut.
• 2024 will be a year to pick your spots. In fixed income, we prefer pairing intermediate duration core holdings with differentiated income-seeking exposures. In equities, we favor adding downside protection in core exposures while taking targeted risk in loveable laggards.

As outlined in our 2024 Year Ahead Outlook, we believe the Federal Reserve is done with the current hiking cycle, but markets are overestimating the speed and scope of easing. We don’t expect a rate cut from the Fed until the second half of 2024 as inflation remains well above the 2% target. For advisors, the interest rate focus will shift from “how high?” to “how long?”, meaning the shape of the yield curve and the trajectory of growth could be key portfolio drivers in the new year.

1. In 2023, global investors added a record $1.1 trillion to their cash holdings, the highest allocation since the pandemic.¹ While a preference for cash made sense during a period of rapidly rising rates, cash may be harder to justify now that the Fed has reached its likely terminal rate. Many investors appear to be waiting on the sidelines for more clarity, but we caution that doing so now could risk missing potential upside in other asset classes.
2. We think advisors could also focus on managing macroeconomic risks in a slowing growth environment. Investors may want to look through broad-based equity exposures and consider steering their portfolio within styles, industries, themes, and geographies. We prefer adding downside resiliency, while selectively taking risk in high quality equities and fixed income.
3. And finally, thematic shifts encourage investors to focus on the long run by investing in sweeping, structural forces such as artificial intelligence and demographic changes.