As the year draws to a close, monetary policy is expected to play a significant role in shaping the stock market in 2024. The American Federal Reserve Bank, in particular, will have a crucial role to play, given its struggles with uncertainty since the Covid pandemic. While many investors are concerned about the ultimate outcome of central bank actions, professional investors believe that the Fed will have the greatest influence on stock prices this year, with 52 percent of investment fund managers pointing to it as the key driver. In contrast, only 33 percent expect company profits to be the main factor affecting prices.
John Plassard, a senior investment specialist at Bank Mirabaud, believes that incorrect monetary policy decisions pose the biggest risk for financial markets currently. The Fed’s handling of inflation has raised concerns among investors, particularly its initial labeling as “temporary” and subsequent adjustments in interest rates. Despite interest rates remaining at 5.5 percent since last summer, central bankers continue to grapple with uncertainty in making key decisions.
Recent events have seen the Fed maintaining interest rates due to a slight increase in consumer prices in March. However, investors remain uncertain about future economic conditions due to unpredictability. Shifting expectations among investors have led to rapid revisions in projections from anticipating a recession to considering scenarios such as a soft landing or possible take-off in economic growth.
Looking ahead to 2024, with over 40 countries holding national elections and potential political shifts on the horizon, uncertainty remains high on the economic landscape. Despite challenges such as inflation and political instability, Plassard advises investors not to be overly risk-averse and suggests that American stocks could perform well – particularly smaller and medium-sized companies.
While monetary policy is expected to play a significant role in shaping stock market performance next year, experts like Plassard emphasize flexibility and caution when navigating evolving market conditions. With so much uncertainty surrounding global economies today, it’s clear that there are no easy answers when it comes investing – but by staying informed and taking calculated risks where necessary
