The 2024 Outlook: Slow-Bicycle Economy (December 18, 2023)

by Patrick Fearon-Hernandez, CFA, Thomas Wash, Bill O’Grady, and Mark Keller, CFA

Summary of Expectations | PDF

The Economy

Economic Growth

We expect the U.S. economy to continue growing into 2024, but its momentum has been slowing, and slowing momentum will put the economy at increased risk of recession. As the growth rate continues to moderate or slow, the economy will become increasingly susceptible to shocks such as a domestic financial crisis or a major geopolitical event that saps confidence.

Just as riding a bike too slowly makes it difficult to stay in balance, slowing economic growth will increase the risk of a downturn in the economy.

Recession Risk

Reflecting the risks inherent in a slower-growing economy, we believe the economy is slightly more likely to slip into a recession in 2024 than it is to avoid one. Nevertheless, if a recession does transpire, we believe it will be relatively mild and short-lived.

Inflation & Monetary Policy

In any case, slowing demand growth and the Federal Reserve’s aggressive interest rate hikes since early 2022 will probably lead to further moderation in consumer price inflation. That should allow the Fed to avoid or at least minimize any further rate hikes, but we expect policymakers to try to keep rates high for an extended period to make sure inflation pressures are eliminated.


The U.S. presidential election in November 2024 could have a big impact on key asset classes. At this point, it appears to be a close race between President Biden and former President Trump, but there is an elevated chance that some third-party candidate or candidates could join the race.

The elevated political uncertainty could keep investors cautious. In contrast, if one candidate appears to break from the pack, or if the election is thrown into the House of Representatives, risk assets could be pushed sharply higher or lower than in our base case.

Market Outlook

Fixed Income

As investors come to accept the Fed’s “higher for longer” stance toward interest rates, we think intermediate- and longer-term U.S. Treasury obligations will be susceptible to selling pressure in 2024, pushing the yield on the benchmark 10-year Treasury note to 4.90% or more.

* The spreads between investment-grade corporate obligations and Treasuries have recently been unusually low, in part reflecting the way many firms refinanced and termed out their debt when interest rates were ultra-low during the coronavirus pandemic. Spreads could remain tight, but if a recession does materialize, we would still expect them to widen to take account of the increased credit risk.

* Similarly, the spread between below-investment-grade corporates and Treasuries is also low, but it would likely widen even more dramatically if economic growth falters.

U.S. Equities

For U.S. large capitalization equities, we forecast that the S&P 500 price index will be between 4,060 and 5,090 at the end of 2024, with a single point forecast of 4,580.

* The rise in the U.S. stock market in 2023 was heavily concentrated among just a few large cap growth stocks. Stocks with smaller capitalizations lagged, making them better values now. We therefore think small cap stocks will outperform in 2024.

* Similarly, value stocks lagged in 2023, likely setting them up to outperform in 2024.

Foreign Equities

We continue to believe that the performance of foreign equities will largely depend on the value of the dollar. Continued strength in the greenback in 2024 is likely to be a headwind for foreign equities, although prudent investors will still want some exposure to the asset class for diversification and as a hedge against any unexpected dollar weakening.


Finally, we expect gold and precious metals to be supported in 2024 by a range of factors, including the end of the Fed’s interest rate hikes, safe-haven buying amid today’s increased geopolitical tensions, and strong buying by central banks.

Broader commodities would face headwinds if a recession materializes, but they could snap back by year’s end if any such downturn ends up being short and mild, as we expect.

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