The key economic question for 2024, according to faith-based investment firm Crossmark Global Investments CIO Bob Dole, is whether central banks can continue the “landing of the plane” (soft landing) without a crash (recession).
The consensus view of 2024, Doll says in his just-released “10 Predictions for 2024,” is one of a “Goldilocks” environment—not too hot and not too cold. Those consensus views include expectations of a soft economic landing, a continued decline in inflation toward targets, and double-digit earnings growth. Not so fast, Doll says.
“We think that fairy tale is unlikely, meaning either 1) the economy weakens enough for a bumpy ride (perhaps a recession) and earnings fall short (most likely), or 2) the economy remains strong enough to support double-digit earnings growth at the risk of little progress on inflation and Fed rate cuts,” Doll says in the executive summary of his 10 Predictions for 2024.
“It is with this backdrop that we proceed as usual with fear and trepidation (and hopefully some good educated guesses) to unveil our prognostications for 2024.”
- The U.S. economy experiences a mild recession as the unemployment rate rises above 4.5%.
- The 2-3% inflation ceiling of the 2010s becomes the 2-3% inflation floor of the 2020s.
- The Fed cuts rates fewer than the six times suggested by the Fed funds futures curve.
- Credit spreads widen as interest rates decline.
- Earnings growth falls short of the double-digit percentage consensus expectation.
- Stocks record a new all-time high early in the year, but then experience a fade.
- Energy, Financials and Consumer Staples outperform Utilities, Healthcare and Real Estate.
- Faith-based share of industry AUM rises for the eighth year in a row.
- Geopolitical crosscurrents multiply but have little impact on markets.
- The White House, Senate and House all switch parties in November.
You may notice Doll predicts that Republicans will win the presidential election in November, without specifically clarifying whether that means a return to the White House for Donald Trump.
In the Executive Summary’s conclusion, Doll writes that the long-predicted recession will likely materialize in 2024, although it most likely will be brief and shallow.
“The main arguments for a recession are the lagged effects of monetary tightening both via the Fed and long-term interest rates,” he said. “While the absence of a recession thus far has increased market expectations for a soft landing, historical comparisons point out that a recession prior to this point would have been on the early side compared to history.”
Doll adds he expects a more challenging backdrop for stocks in 2024, with softening consumer spending at a time when investor sentiment has turned bullish. “Equities are richly valued, with volatility near historic lows, even as geopolitical and domestic political risks remain elevated. We expect the 2023 momentum and Fed cut euphoria to fade early in the new year, resulting in lackluster earnings growth and downside risk to equities as 2024 unfolds.”
Doll has been offering his 10 predictions for the coming year for more than 30 years, focusing on the trends and issues he believes are positioned to shape the economy and markets.
Doll plans to review his 10 Predictions for 2024 during a webinar on Jan. 10 at 4pm ET. Those interested can sign up via the registration link here.
Doll grades his 2023 predictions
Recently, Doll released at look back at his 2023 predictions, revealing that only five of his 10 predictions came to fruition last year, “one of our worst years and well below our long-term average of 7.0-7.5,” Doll said in his Dec. 18, 2023 weekly investment commentary.
Below are Doll’s 10 Predictions for 2023, along with some of his comments about how they fared.
1. The U.S experiences a shallow recession as real GDP is in bottom 10 of last 50 years.
“Needless to say, the much-anticipated recession failed to materialize.” (Incorrect)
2. Inflation falls substantially, but remains above Fed’s target.
“Our view from the beginning of the year was that if the Fed really did insist on 2% inflation, a recession would develop. While inflation has fallen from its peak by a large magnitude, the decline from 3-4% to the Fed’s 2% goal remains elusive.” (Correct)
3. Fed funds reaches 5% and remains there for the balance of the year.
“This was a rather bold prediction at the beginning of the year and was tested several times especially during the spring banking crisis when the consensus call was for three Fed cuts by year-end, not a rise to 5.25%. This will be a variable carefully watched and discussed as we enter 2024.” (Correct)
4. Earnings fall short of expectations in 2023 due to cost pressures and revenue shortfalls.
“For the first three quarters, earnings came in less bad than feared, but during the interim periods, estimates kept falling as cost pressures made it difficult for companies to meet earnings targets despite legitimate pricing power. (Correct)
5. No major asset class is up or down by a double-digit percentage for only the fourth time this century.
“… Our thought that markets would be more range-bound proved inaccurate as stocks catapulted higher, led by the Magnificent 7. If we had said the ‘average’ stock, instead of the cap-weighted index, we would have scored on this one. (Incorrect)
6. Energy, Consumer Staples, and Financials outperform Utilities, Technology, and Communication Services as Value beats Growth.
“… This one was way off the mark. Not only did growth beat value, but technology and communication services were the two best sectors, while energy and consumer staples were two of only four sectors that were down for the full year. Not making excuses, but the Magnificent 7 sure skewed sectoral performance. (Incorrect)
7. The average active equity manager beats the index in 2023.
“Again, the strength of the Magnificent 7, the severe underperformance of the average stock, and active managers trending toward more equal than cap-weighted portfolios rendered this prediction incorrect early in the year.” (Incorrect)
8. International stocks outperform the U.S. for the second year in a row (first time since 2006-2007).
“The sharp outperformance of mega-cap growth (U.S. centric) and the rally in the dollar along with economic weakness in many parts of the globe caused another inaccurate prediction. (Incorrect)
9. India surpasses China as the world’s largest population and is the fastest-growing large economy.
“Thankfully, India came to our rescue, surpassing China as the world’s most populous country early in the year.” (Correct)
10. A double-digit number of candidates announce for President.
“A double-digit number of presidential candidates materialized on the Republican side alone. While the election is still nearly a year away, it is hard to believe (and disappointing to many) that it could be Joe Biden vs. Donald Trump again.” (Correct)
SEE ALSO:
• 10 Predictions for Investors in 2023: Bob Doll
• Bob Doll’s 10 Predictions for 2022: Politics, Pandemics, and Inflation