Our last quarterly column in these pages, at the end of October 2023, was about the pessimism that had taken markets by storm back then, and why we thought it could be excessive. I must say that we have not been unlucky with the timing, as an extremely powerful rally of everything took place in the last two months of 2023, turning it into a great year for investment. Stocks from developed markets defied all predictions with a +23% return, but it was broader, with all major asset classes ending the year in the green.

This week we released our 2024 Global Investment Outlook. The previous one was titled on unpredictability; this one is called “The Year of Answers”. Before sharing with you its key points, let me address a question we are often asked: we release our annual publication in late January each year, while many of our competitors prefer to write as early as October or November. The reason is not that we are slow, but simply that we always want to report on our results and successes, but also our mistakes from the previous year.

The timing is particularly lucky again in 2024, as many of our esteemed competitors were, of course, not aware of the year ending so happily. And our results for last year were satisfying, with respectively +10, +13, and +156% in round numbers, which was great in absolute and also very robust compared to our global peers. No genius here as we were expecting a year of unpredictability, we refrained from trying to guess short-term market moves and remain in line with a reshuffled strategic asset allocation. This illustrates the old market adage saying that more money can be lost by trying to avoid corrections than by corrections themselves.

Back to 2024, which is the Year of Answers to the big questions of 2023. Growth, inflation, central banks, but also politics and geopolitics will take a clearer direction in the year ahead, hopefully a reasonably positive one. This is obviously good news, but for investors, we expect a year of modest returns, with high volatility. Let me explain.

First, our central scenario is constructive: we expect global growth to slow enough to keep inflation in check, but to avoid a recession. This is a “soft-landing” for the global economy, with the US being the most important in terms of weight and contribution to global growth. Again, this is good news, but the issue is that this scenario is extremely consensual, and as a result at least partially, and sometimes generously, priced-in by market valuations.

This is indeed precisely what happened since our last quarterly column. There are two consequences.

First, the upside potential even under this positive scenario is relatively limited.

Second, a strong consensus can only be questioned: expectations will evolve with monthly economic data, which will change the probabilities between the “soft landing” assumption and alternative possibilities such as a recession (growth slowing too much) or a rebound in inflation (which is the most adverse scenario). This is the first source of volatility, which will be exacerbated by another factor: intertwined political and geopolitical uncertainty with elections taking place everywhere, including an unusually open one in the US in November, and dangerous tensions in Europe and the Middle-East.

Modest returns with high volatility are not an exciting combination. It could be tempting for investors to forget risk in 2024 and seek haven in the safest asset classes. Let me be very clear – if your investment horizon is short, something like less than two years, money market funds or short-dated safe bonds are definitely the way to go. It will also limit the damage in the unlikely, but not impossible, perspective of a rebound of inflation. But in any other case and for long-term portfolios, which are the majority in a wealth management context, this is probably not the best option.

It's time to mention the good news from the investment landscape in 2024. First, central banks will have less leeway for action, as they sit between the threat of inflation on one side, and economic and financial risks on the other. This has two implications. First, diversification should work again: bond yields are high enough to mitigate the volatility and downside risk of cyclical assets – their correlations should fall, which is good news for multi asset portfolios. Second, markets should care less about just monetary policies, and more about fundamentals. This should unlock the potential of selectivity. After years where replicating indices was the most effective way of investing, we believe that the alpha from active management will come back.

Let me conclude with a takeaway from 2023: the worst is never certain, and timing the market is close to impossible. Let the magic of long-term compounded returns and of diversification benefits grow and protect your wealth over time!