Lower Inflation Around the Globe Should Allow
Central Banks to Cut Rates, While US Equities May Reach a Record
Level of 5000 on the S&P by Year-end
NEW
YORK, Nov. 27, 2023 /PRNewswire/ -- Few have
experienced today's macro uncertainty in their lifetime, and
investors have underappreciated and underpriced its impact. The
recession that many expected in 2023 never arrived. Inflation
rates peaked in the fall of 2022 in many geographies and
disinflation continued throughout 2023, despite economies being
generally stronger than expected. In their newly released outlook
for 2024, BofA Global Research economists and strategists note they
expect this disinflation to continue and rate cuts to begin midway
through the year from both the Federal Reserve and European Central
Bank. Rate hikes seen over the last year and a half should
ultimately weaken growth and lead to higher unemployment rates,
though our economists are calling for a soft landing rather than a
recession.
"2023 defied almost everyone's expectations: recessions that
never came, rate cuts that didn't materialize, bond markets that
didn't bounce, except in short-lived, vicious spurts, and rising
equities that pained most investors who remained cautiously
underweight," said Candace Browning,
head of BofA Global Research. "We expect 2024 to be the year when
central banks can successfully orchestrate a soft landing, though
recognize that downside risks may outnumber the upside ones."
Key macro calls made for the markets and economy in the year
ahead are:
- A global shift to rate cuts: Claudio Irigoyen, head of Global Economics,
expects inflation to gradually move lower across the globe,
allowing many central banks to cut rates in the second half of 2024
and avoid a global recession. Head of US Economics Michael Gapen expects the first Fed rate cut
in June and the central bank to cut 25 basis points per quarter in
2024.
- The 3Ps = the 3Bs: Chief Investment Strategist
Michael Hartnett thinks the
bull markets of 2024 will be the "3Bs"... Bonds, Bullion &
Breadth. He believes the risk of a hard landing for the economy is
higher-than-expected and that he awaits the classic combination of
bearish investor positioning, recessionary corporate profits and
easing policy—the "3Ps"—before he flips to being a full bull.
- S&P 500 forecast to end 2024 at 5000, an all-time
high: Head of US Equity and Quantitative Strategy
Savita Subramanian remains
bullish on equities—not because the Fed is expected to begin
cutting rates next year, but because of what the Fed has already
done and how corporates have adapted. EPS can and has accelerated
as GDP slows, and reshoring has been identified as a tailwind by
companies.
- Expect Brent crude to average $90, commodities to restock: OPEC+ has been
cutting supply since 2022 and will likely keep at it in 2024.
Francisco Blanch, head of
Commodities and Derivatives Research, sees oil demand growing by
1.1 million barrels per day in 2024 as emerging markets benefit
from the end of the Fed's monetary tightening cycle. Yet Brent
and WTI prices should average $90/barrel and $86/barrel, respectively. Recession,
faster-than-expected US shale growth, and lack of OPEC+ cohesion
are downside risks to oil prices. Lower rates should boost gold and
lead to restocking in industrial metals.
- Japan inflation
persists: Our Japan team expects an improvement in consumer
spending and forecasts inflation to remain above consensus, which
is a positive in the case of Japan. Our strategists expect progress with
corporate reform, evidenced by the highest number of companies
raising guidance in ten years.
- Rate cuts and a peaking US Dollar are a positive for
Emerging Markets: EM returns in the 12 months after the last
Fed hike in a cycle tend to be highly positive and positioning is
light across EM assets. China
economic growth should stabilize. Our fundamental FX team is more
bearish on the USD than consensus as US GDP growth slows and the
Fed begins to cut rates.
- Seek quality yield in credit: Rates, earnings and
issuance will likely challenge credit in 2024, causing our credit
strategists to prefer quality. They believe investment grade offers
the best relative value in credit. Loans offer more carry than high
yield (HY) and HY credit losses are unlikely to be lower than
loans.
- Slowing investment spend a drag US economic growth: The
impact of fiscal investment programs should dissipate. Our US
economists expect consumption to slow down but not to crash. While
capex has secular tailwinds, cyclical headwinds also exist, as
evidenced by fewer CEOs expecting higher capex over the next six
months.
- US 10-year Treasury yield should remain elevated: Our US
Rates Strategist Mark Cabana
is not as bullish as consensus on 10-year bond prices for several
reasons: the US fiscal stance has deteriorated, as has its net
international investment position, and duration/inflation risk have
become riskier.
- Policy uncertainty could rise as elections will occur in
countries that make up over 60% of global GDP: Our Research
team expects heightened policy uncertainty amid increasing
political polarization. Fiscal consolidation becomes difficult,
having implications for rates.
BofA Global Research
The BofA Global Research franchise covers more than 3,500 stocks
and 1,250 credits globally and ranks in the top tier in many
external surveys. Most recently, the group was named No. 2 Global
Research Firm of 2022 by Institutional Investor magazine; No. 1 in
the 2023 Institutional Investor All-America survey; No. 1 in the
2023 Institutional Investor Developed Europe survey; No. 1 in the
2023 Emerging Europe, Middle East
& Africa survey; and No. 2 in
the 2022 Institutional Investor Global Fixed-Income Research
survey. For more information about any awards cited,
visit https://rsch.baml.com/awards.
Bank of America
Bank of America is one of the world's leading financial
institutions, serving individual consumers, small and middle-market
businesses and large corporations with a full range of banking,
investing, asset management and other financial and risk management
products and services. The company provides unmatched convenience
in the United States, serving
approximately 69 million consumer and small business clients with
approximately 3,900 retail financial centers, approximately 15,000
ATMs (automated teller machines) and award-winning digital banking
with approximately 57 million verified digital users. Bank of
America is a global leader in wealth management, corporate and
investment banking and trading across a broad range of asset
classes, serving corporations, governments, institutions and
individuals around the world. Bank of America offers
industry-leading support to approximately 4 million small business
households through a suite of innovative, easy-to-use online
products and services. The company serves clients through
operations across the United
States, its territories and more than 35 countries. Bank of
America Corporation stock is listed on the New York Stock Exchange
(NYSE: BAC).
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Reporters may contact:
Melissa Anchan, Bank of
America
Phone: 1.646.532.9241
melissa.anchan@bofa.com
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SOURCE Bank of America Corporation