After the Rate Reset: Investing Reconfigured
Three years ago, nearly 30% of all global government debt traded with a negative yield. Today, negative yielding debt has all but disappeared with over half of the developed world’s sovereign debt trading with a yield higher than 4%.
The rise in global bond yields is not just historic – it marks the most important development in markets since the world emerged from the Covid-19 pandemic. Rates near 5% give investors more choices in crafting their goal-aligned wealth plans than at any time since the global financial crisis.
To harness the new dynamics of a 5% rate world, J.P. Morgan Private Bank’s 2024 Investment Outlook explores five important themes.
1. Inflation will likely settle – you should still hedge against it. To grapple with the prospect of more meaningful inflation in 2024 and beyond, investors might first look to equities. Public companies may continue to maintain both pricing power and their margins.
2. The cash conundrum: the benefits and risks of holding too much. Low volatility and 5% yields on cash have been a magnet for J.P. Morgan Private Bank’s clients, who are holding significantly more cash than they did two years ago. This trend is global, but particularly powerful in the United States where clients have over twice the allocation to short-term treasuries and money markets as their peers outside the United States. We think this is as good as it gets for cash.
3. Bonds are competitive with stocks – adjust the mix according to your ambitions. While there has been a painful stretch for bondholders this year, the new rate regime represents a reset in bond market pricing, and core bonds may now be poised to deliver strong forward-looking returns. Relative to stocks, bonds haven’t looked this attractive since before the Global Financial Crisis.
4. Stocks: on the march to new highs. Equities offer the potential for meaningful gains in 2024. Even as economic growth slows amid higher rates, large cap equity earnings growth should accelerate and may propel stock markets higher over the next year.
5. Pockets of credit stress loom, but they will likely be limited. The next year could see stress in certain sectors of the credit complex. For example, commercial real estate loans, leveraged loans, and some areas of consumer credit – such as autos and credit card – and high-yield corporate credit could be vulnerable.
Rick Barragan is the Managing Director,
Los Angeles Market Manager, for J.P. Morgan Private Bank.
[email protected] | (310) 860-3658
privatebank.jpmorgan.com/los-angeles
Source: J.P. Morgan Private Bank, December 2023 Outlook 2024 After the Rate Reset: Investing Reconfigured By Global Investment Strategy Group, J.P. Morgan Private Bank
