16 January 2024
When you see the phrases “bull market” and “bear market” bandied around in the press, they might seem relatively meaningless – but in fact, they carry a lot of weight.
A bear market describes a period in which markets are “retreating” or “hibernating”, which might help to make sense of the term. In other words, when bond and equity markets see long-term overall downswings, usually 20% or more, you might describe this as a bear market.
As such, the downturns experienced across the 2020s so far have led to a bear market.
On the other side of the coin, a bull market describes consistent gains of around 20% or more across a period of months or years.
After a bear market has dominated this decade so far, many economists and stock market experts are forecasting a turning of the tide in 2024.
So, could there be a bull market this year, and what might this mean for your investments? Keep reading to find out more.
The argument for a bull market in 2024
There are a number of factors that are fuelling the latest bull market forecasts. Let’s take a look at two of them in more detail.
Declining interest and inflation rates
Interest and inflation were ubiquitous subjects in 2023.
In the UK, the Office for National Statistics (ONS) reports that inflation slowed from 10.1% in January 2023 to 3.9% in November.
As a result, the Bank of England (BoE) chose to fix the base rate at 5.25% in August, where it has remained until the time of writing (January 2024).
If inflation continues to ease towards the BoE’s target rate of 2%, the BoE may elect to drop the base rate to a more sustainable level of around 4%.
Circumstances in the US and Europe are similar to that of the UK – inflation is slowing down, and interest rates may be cut in 2024 as a result. In fact, according to JP Morgan, the US December Federal Open Market Committee meeting produced a forecast of three interest rate cuts from the Federal Reserve (Fed) across 2024 – although of course this is subject to change.
The effect of declining interest and inflation rates on markets is usually positive: company profits tend to rise, meaning their share values often follow suit; investors may have more disposable income; and fiscal optimism generally improves across the board.
In fact, the positive impact of declining inflation and a pause in central interest rate hikes already became evident at the end of 2023. You can read about this in detail in our Q4 2023 market update.
Several other factors may create bull market conditions this year
Interest and inflation rates are just two of the elements that could push markets into bullish conditions this year. Others may include:
- Improved GDP in the US, Europe, and the UK
- A significant uptick in a particular sector – the “Magnificent Seven” mega cap technology stocks, for instance, have played a large part in positive market performance towards the end of 2023
- Strong employment.
As the year progresses, a number of these factors could converge to create the next bull market.
It’s important to note that market conditions can change rapidly, and if your portfolio isn’t seeing the kind of gains many forecasters are predicting, that does not mean you have “done something wrong”. Keeping in touch with your financial planner might help you capitalise on gains while assuaging any worries you may have.
The case for a continued bear market in 2024
While most forecasters are predicting that 2024 may be a strong year for markets, some say investors should remain cautious in their outlook. The 2020s bear market began with the Covid-19 pandemic, and while optimism is understandable, it may take longer than hoped to turn the tide.
Indeed, while many indices rallied at the end of 2023, the last three years have taught us to expect the unexpected. Geopolitical factors could continue to have an impact on markets, recessions are still possible, and both the US and UK are set to have general elections in the last few months of the year.
Remember, markets are controlled by investors’ behaviour. So, if any of the following aspects were to dampen the enthusiasm that bolstered index performances in Q4 2023, the bear market could continue (or return after several months of a bull market):
- Stubborn inflation, which could prompt central banks to raise interest rates or fix them at a high rate.
- Political upheaval in the UK and US.
- Ongoing wars in the Middle East and Ukraine.
Ultimately, the manner in which global events unfold in 2024 may heavily influence investors’ behaviour. So, while the case for a bull market is strong, it’s important to understand the other side of the story too.
There is no crystal ball, but financial planning could prepare you for any eventuality
Sadly, we can’t tell you what will happen to the stock market in 2024. No forecaster, however experienced, can tell you with 100% certainty which way the needle will move.
What’s more, it doesn’t strictly matter how markets perform this year – what matters is that your financial plan is designed with several eventualities in mind. Preparedness trumps prediction when it comes to investing, so ensuring your portfolio is robust enough to withstand any pressures it faces is important.
With this to consider, it may be helpful to get in touch with your financial planner this new year. We can talk you through how your investment portfolio is performing, how you could capitalise on any upticks in the market, and answer any questions you may have.
To get started, email firstname.lastname@example.org or call 0161 8080200.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.