How to use the market potential in 2024? OANDA TMS Brokers forecasts

Will the stock exchange continue the growth that started in 2023? What market trends will be determined by the decade and presidential cycle in the US? What will the upcoming bitcoin halving bring? Łukasz Zembik, Wojciech Białek and Craig Erlam present their analyses in the latest e-book.

2024 on the markets

It seems that the most important factors influencing the market in 2024 will be inflation and interest rates. More expensive money will mean higher borrowing costs for consumers and businesses, negatively impacting economic growth and profitability. High prices, however, will influence purchasing decisions, which will limit demand and also translate into a slowdown in the global economic situation, mainly in the first half of the year.

Economic slowdown in the USA

The United States economy was still doing very well in the third quarter of 2023. At the beginning of the new year, however, we will likely receive more data pointing to cooling. To a stronger slowdown bordering on recession will probably occur in the USA in the second and third quarter of 2024, when the dampening effect of previous dynamic interest rate increases will become visible. According to the Federal Reserve's assumptions, real GDP for the entire next year should amount to 1,4%, and in 2025 - 1,8%.

On the inflation front, the Fed's latest projections show the PCE headline rate will average 2024% in 2,4, in line with the core measure. Both numbers are forecast to come close to the Fed's 2% target. in 2025.

The American central bank expects three interest rate cuts next year, not two - as previously expected. At the same time, the economy is expected to experience a soft landing. As inflation declines, the likelihood that the Fed will cut interest rates before mid-2024 has increased. The market reaction after the December meeting was understandable. The dollar lost value, US bond yields dropped, and stock indices gained.

Calendar cycles in the USA and American stocks

Two American calendar cycles may have an interesting impact on the market - the 4-year "presidential cycle" (the standard 4-year cycle of the term of office of the President of the United States between subsequent elections) and the 10-year "Decennial Pattern" (decadal cycle).

What is the “presidential cycle”? The administration in the White House is trying to send "satisfied" voters to the next presidential election through direct fiscal policy. This requires the use of fiscal policy tools in advance, the delayed positive effects of which (e.g. low unemployment rate) will appear in the period immediately preceding the presidential elections. The stock market captures this pre-election fiscal stimulus well in advance. This results in a 90-year-old reliable speculative rule recommending buying the S&P 500 at the end of the third quarter of the third year after the US presidential election and selling it five quarters later at the end of the third year after the election.

According to the "decennial pattern", American shares should be purchased at the end of the third quarter of the year ending in 2. It must be honestly admitted that a rational explanation of the "decennial pattern" is much more difficult than in the case of the "presidential cycle", but the existence of this phenomenon has long been observed on the US stock market.

These two cycles - the 4-year "presidential cycle" and the 10-year "decennial pattern" - synchronize every 20 years (20 is the lowest common multiple of 4 and 10). In other words, every 20 years is the optimal moment to buy American shares from the point of view of both cycles simultaneously. According to this concept, the American stock market has been in the "decennial pattern" period for just over a year, which is very favorable for increases in American stock prices, and for now there are no particular reasons why this growth phase of the 20-year cycle will be exceptionally short this time.

The end of the recession in the euro zone, but without a dynamic rebound

Latest forecasts EBC assume that real GDP in 2024 in the entire euro area will be 0,8%, while only from 2025 we can expect growth around 1,5%. Compared to the September estimates, the current projections have been revised downwards. The economy will probably emerge from the recession in the spring of 2024, but a dynamic rebound is not expected. The ECB is likely to cut interest rates later than Fed, which is mainly due to the risk of inflation rising in the medium term due to the persistently high wage pressure.

ECB economists expect inflation to average below 2024% in 3. The latest readings for November certainly played an important role here, and they were positively influenced by lower service prices. Of course, there are risk factors that may increase the dynamics of price growth. These are certainly geopolitical tensions and their impact on oil prices. We should also not forget about the constantly rising wages, which will increase the costs of enterprises and result in them being largely passed on to consumers.

Oil market and concerns about oversupply

The market has begun to price in a likely oversupply of crude oil in early 2024, but concerns about it are likely somewhat exaggerated. It should be remembered that the decisions taken by OPEC+ at the end of November 2023 will ultimately tighten the market situation. Saudi Arabia plans to continue voluntary production cuts of 1 million barrels per day until the end of the first quarter of 2024. In turn, Russia intends to reduce its oil exports by 500. barrels per day in the same period. Previously, there had already been cuts of PLN 300. barrels. It doesn't end there. Other countries (Iraq, United Arab Emirates, Kuwait) announced that they will also participate in the reduction of supply and in total they want to reduce production by 700. barrels in the first three months of the new year. In total, voluntary cuts amount to 2,2 million barrels.

It is therefore likely that these actions will prevent large oversupply on the market. However, the condition is that the declarations of the OPEC+ countries must be reflected in real actions. However, there is a risk that after the first quarter of 2024, voluntary cuts may cease to apply and then the market may be better supplied with oil.

Artificial intelligence euphoria – which companies have further growth potential?

Recent years have brought a significant increase in the popularity of the field of AI (artificial intelligence) thanks to Open AI making the ChatGPT (Chat Generative Pre-trained Transformer) program available to the general public, whose capabilities caused quite a sensation around the world. We can expect further dynamic development of this relatively new field.

One of the companies benefiting from this "boom" is NVIDIA. In the years 1999-2020, the company's share price was within the long-term upward trend channel and then left it at the top. In 2022, it moved back to the upper limit of this channel, and then from October last year. resumed its upward climb. The stock is currently above its rising 50-week average, which is above its rising 200-week average.

Another Bitcoin halving is ahead of us – what will come of it?

Every 4th  years, the number of bitcoins awarded to "miners" (the probability of "mining" them) is halved, which is supposed to make this instrument resistant to inflation. This process - referred to as "halving" - will last until probably around 2140, when all 21 million bitcoins will be "mined". Previous operations of this type took place on November 28, 2012, July 9, 2016, and May 11, 2020. The next one is estimated for April 2024, i.e. in approximately 3 months.

You can try to speculate that  the growth pattern known from previous halvings BTC/USD rate will happen again, although past experience suggests that this time the final scale of this alleged increase in the BTC/USD rate lasting on average less than 16 months may be lower again than the previous one. Perhaps it will culminate around May-November 2025.

More about investment forecasts for 2024 in e-book OANDA TMS Brokers.