6 Predictions for Stocks, Inflation, Economy in 2024

Wells Fargo also noted that fourth-quarter profits for the S&P 500 index exceeded expectations, growing for the second consecutive quarter.

"We expect earnings growth this year, but it could be modest as the consumer weakens and rates remain elevated. In this environment, we suggest focusing on quality and prefer U.S. Large Cap over U.S. Mid Cap and Small Cap Equities."

Wells Fargo also said market repricing of Fed interest rate cuts for this year has significantly affected long-term fixed income returns year to date. The institute remains neutral on long-term and intermediate-term fixed and most favorable on short-term fixed income.

4. Bring on the risk — for now.

BlackRock

"We see falling inflation, nearing interest rate cuts and solid corporate earnings supporting cheery risk sentiment. We tweak our tactical views and stay pro-risk," the BlackRock Investment Institute said this week, noting that it's a short-term stance.

U.S. stocks hit record highs last week and 10-year yields fell as the Fed stuck with planned rate cuts, while Japanese stocks gained on a cautious Bank of Japan policy pivot, the firm wrote.

The Personal Consumption Expenditures Price Index "takes center stage this week. We see goods deflation pulling down overall U.S. inflation for now before inflation resurges in 2025," BlackRock predicted.

"Central bank activity last week gave markets the thumbs up to stay upbeat. That keeps us pro-risk in our six- to 12-month tactical views as Q2 starts. We see stock markets looking through recent sticky U.S. inflation and dwindling expectations of Fed rate cuts. Why? Inflation is volatile but falling, Fed rate cuts are on the way and corporate earnings are strong. We stay overweight U.S. stocks but prepare to pivot if resurgent inflation spoils sentiment. We up our overweight on Japanese stocks."

5. Expect inflation near 2% by year-end.

UBS

Despite some contrary data, such as higher-than-expected inflation and weaker retail sales, UBS is holding to a soft-landing outlook with more moderate growth, the Fed gradually cutting rates, and inflation close to the Fed's 2% target at year-end.

"On our forecasts, by the time of the June (Federal Reserve) meeting, conditions should be right for the Fed to trim rates," Brian Rose, senior U.S. economist at UBS Global Wealth Management, said in a note. "Both we and the Fed see the current level of rates as well into restrictive territory, which means that sooner or later growth will slow below trend unless the Fed cuts. We therefore view it as highly likely that the Fed will start easing policy before year-end." 

Only by diversifying across asset classes, regions and sectors can investors effectively manage the risks in short-term market dynamics while also growing long-term wealth, according to UBS's chief investment office.

6. Fed cuts could end in two ways.

JPMorgan

J.P. Morgan Securities expects the Fed to start trimming interest rates in June, although updated projections imply a shallower path, the firm wrote. That's one variable that could affect stocks, the firm noted.

"Overall, if central banks turn out to be more dovish than currently projected, but without this being accompanied by growth disappointments, present equity multiples could be defended. However, if activity momentum, and in particular earnings delivery, disappoints, and central banks end up more reactive than proactive, then we think that equity multiples would need to fall."

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