JP Morgan Chase unveils financial and capital markets outlook for 2024

New Delhi [India], December 6 : In the second instalment of our three-part 2024 outlook series, JP Morgan Chase delved into the financial and capital markets, exploring trends, and offering forecasts across various sectors, including interest rates, commodities, FX, and issuance volumes.
The year 2023 witnessed a robust performance in major indices, driven primarily by mega-cap technology and communications equities.
The S&P 500 and Nasdaq surged by approximately 20 per cent and 35 per cent, respectively, reclaiming much of the previous year's losses.
However, this rally hasn't been uniform, with mid- and small-cap equities lagging, and the KBW bank index experiencing a 19 per cent decline.
As we approach 2024, the outlook for corporate earnings remains cautious, with expectations of low single-digit growth. We estimate the S&P 500 to end 2024 at 4200.
Volatility in the equity market has substantially decreased, with the VIX averaging 17 through November 2023, compared to 26 in 2022.
This drop is seen as a normalization following significant events in 2022, such as the Russia-Ukraine war and the steepest Fed hiking cycle in decades.
The VIX is expected to average in the upper teens next year if the base case soft landing scenario materializes.
Anticipating a decompression in High Grade (HG) and High Yield (HY) bond spreads in 2024, forecasts indicate stable HG spreads around 125bp and a 50bp widening for HY spreads to 475bp. Leveraged loans are expected to see a 25bp spread increase to 550bp.
Despite these projections for wider spreads, a slight decline in default rates across high-yield bonds and leveraged loans is expected in 2024.
The Federal Reserve's fastest hiking cycle is believed to have concluded, with an extended pause expected through mid-2024.
A potential easing of policy rates by 25bp per meeting in 3Q24 is forecasted, bringing the Fed Funds range down by 100bp to end 2024 at 4.25-4.5 per cent.
Rising concerns about slowing global growth are anticipated to bolster the US dollar in the first half of 2024. Strength against the euro and sterling is expected, while the yen may receive support from tighter monetary policy in Japan.
A modest decline of 2-3 per cent in the dollar is forecasted by the end of 2024 as the focus shifts to potential Fed rate cuts in the second half of the year.
After two consecutive years of double-digit returns, commodities experienced a 6 per cent drop through November 2023.
Brent oil is expected to stabilize in 2024, averaging USD 83, and industrial metals may see low to mid-single-digit downside amid slowing global growth. Precious metals could extend their 2023 rally into 2024, serving as safe-haven assets amid uncertainty.
The capital markets landscape may become more favourable for issuers in 2024 with the prospect of lower interest rates.
The Initial Public Offering (IPO) and Mergers and acquisitions (M&A) markets, subdued in 2023, are expected to witness increased activity next year.
Despite potential regulatory hurdles and ongoing macroeconomic uncertainties, the build-up in M&A deal pipelines, substantial financial sponsor dry powder, and IPO green shoots point towards a pickup in activity.
High Yield issuance is anticipated to increase in 2024, with a 25 per cent YoY rise to USD 225 billion. Institutional loan issuance is expected to climb 10 per cent YoY to USD 375 billion.
Investment grade issuance is projected to remain flat at USD 1.2 trillion, with financial supply rising by 8 per cent and non-financial supply declining by 7 per cent.
The issuance outlook reflects expectations of lower rates and a significant portion of leveraged credit coming due in the next three years.
As we navigate through the complexities of the financial landscape, these insights provide a comprehensive overview of what lies ahead in 2024, allowing investors and market participants to make informed decisions in a dynamic environment.
The series will conclude next week with outlooks for major international economies.