2024 Economic Outlook
The central theme for 2023 global economic outlook was the likelihood of achieving soft landings for developed economies against the background of synchronized rate hikes by central banks.
Monetary policy makers prioritized reining the global surge in consumer prices that followed massive monetary and fiscal stimulus programs implemented by national governments in the aftermath of economic shutdowns enacted to fight the spread of COVID-19 outbreak.
The United States, which was at the forefront of global push to curtail the spread of the COVID-19, approved stimulus bills beginning in 2020 that amounted to roughly $5 trillion. These federal funding was channeled to individuals and families – $1.8 trillion; businesses - $1.7 trillion; state and local governments - $745 billion; healthcare providers - $482 billion; and others - $288 billion.
In response to the COVID-19 pandemic and economic crisis, Federal Reserve policymakers disbursed $4.7 trillion in monetary support in the form of purchases of long-term US Treasury securities and mortgage-backed securities, provision of US dollars to foreign markets and other types of Federal Reserve lending programs.
Furthermore, Congress passed three pieces of legislation since late 2021 that seek to improve US economic competitiveness, innovation, and industrial productivity - the Bipartisan Infrastructure Law (BIL), the CHIPS & Science Act, and the Inflation Reduction Act (IRA.) They have partially overlapping priorities and together introduce $2 trillion in new federal spending over the next ten years.
SP500 Outlook
Investors were focused since then on analyzing market data trying to predict when policy makers will shift their stance from restrictive to easier monetary policy. The last meeting of the Federal Reserve in 2023 on December 12-13 signaled the end to Fed’s recent tightening phase.
The stock markets’ reaction was similar around the globe – expectations of lower interest rates boosted stock prices to higher levels. Dow Jones recorded its first record close in almost two years the day Fed chair Jerome Powell said that US central bank’s historic tightening of monetary policy is likely over.
The US economy seems to be heading for a soft landing - falling inflation without unemployment going up drastically and GDP growth going negative. Weekly unemployment insurance claims are not rising while the November retail sales surprise - US retail sales performed much better than expected - confirms strong household spending still supports US economy.
However, going forward US households still face challenges like stagnating real household disposable income, high borrowing costs and the exhaustion of savings accumulated during the post-COVID period.
And while economists project the US economic growth will most likely slow in 2024, the stock market is poised to continue the bullish run in 2024.
