Horizon Q1│2024

Prof Dr Bernd Meyer and team provide an outlook for the first quarter of 2024 in the current Horizon publication.

Key statements of the outlook

(Too) strong consenses

The market has a surprisingly uniform opinion: the US economy will make a soft landing in the first half of 2024, the Fed will cut interest rates from the second quarter and bond yields, as well as the US dollar, will fall. The prospect of an upturn supports equity markets and risk assets.

Significant risks

However, the soft landing scenario is a fine line for the markets with risks on both sides. More robust growth leads to high interest rates in the longer term, which weighs on valuations. Weaker growth, on the other hand, weighs on profit expectations that are already too ambitious.

Our topics 2024

High interest rates burden households and companies. Global economy initially weaker, opportunity for an upturn from the middle of the year. Increased risks, but good medium-term prospects for all asset classes (equities, bonds, commodities) favour a broad portfolio structure. Market breadth should increase significantly.

Dear readers,

2023 was better for investors than 2022. European and US equities, many bond segments and gold performed well. However, it was not an easy year – many things turned out differently than expected. Europe came through the winter well but slipped into recession in the second half of the year. The recovery in China after the end of the COVID-19 restrictions was only brief, and the US economy remained remarkably robust – despite the banking crisis in the spring – thanks in part to the liquidity support provided by the US Federal reserve (Fed). The narrative on the markets was constantly changing and bond yields fluctuated wildly. Central banks raised interest rates more than expected. Real yields continued to rise and, as in 2022, weighed particularly heavily on interest rate-sensitive investments, including our favoured quality and growth stocks and small caps. Market breadth was very low, with a few large stocks accounting for the bulk of overall market performance. I explain what these developments meant for Berenberg's multi-asset strategies and what adjustments we made in the Insights interview.

Looking ahead to 2024, the majority of investors, bank economists and market strategists are of the same opinion: the US economy will make a soft landing in the first half of 2024, the Fed will cut interest rates from the second quarter, bond yields and the US dollar will fall, and yield curves will steepen. If there is then a prospect of an upturn, this will support the equity markets and other risk assets. Equities and bonds promise positive, generally single-digit returns. Our base scenario hardly differs from this picture either. And indeed, the cooler US inflation and weaker US economic data in recent weeks are consistent with this. However, the problem is that the markets have largely priced in this scenario since the end of October. So, if it materialises, the potential on the markets is likely to be limited. Otherwise, there is potential for disappointment, as the risks for the base scenario are high – as in 2023, many things could turn out differently again. The downstream effects of the restrictive monetary policy are likely to have an increasing impact, especially as the (re)financing requirements in 2024 are considerable. In addition, the fiscal stimulus that has cushioned the negative effects of interest rate hikes so far is likely to weaken. The US presidential elections and geopolitical tensions are further sources of uncertainty. The risk of a less soft landing should therefore not be underestimated.

Only with more clarity in this regard and foreseeable interest rate cuts should the markets focus on a subsequent upturn on both sides of the Atlantic and risky investments recover more sustainably. A broad, balanced portfolio structure, therefore, still seems advisable. Especially as this offers opportunities for positive real returns in the medium term in view of the attractive valuations in many segments (small caps, European equities) and the current yield (EUR covered bonds, emerging market (EM) local currency bonds, cat bonds).

I wish you all the best for 2024!


Prof. Dr. Bernd Meyer
Chief Investment Strategist and Head of Multi Asset
Phone +49 69 91 30 90-225