Why are we positive on markets for 2024?

The first factor is growth. In New Zealand, growth has been muted but resilient in the face of high interest rates. Looking offshore, global GDP grew in 2023 despite expectations of almost certain recession. Helping to drive this global growth was the United States economy which grew at 3.1% in 2023, which is a long way from recession. This is a pattern which we expect will continue this year.

Inflation – As the disruptions of Covid fade into the past, spending patterns have mostly normalised while supply constraints have eased to pre-pandemic levels. As a result, inflation across the globe has been steadily falling. While the decline in inflation in New Zealand is not as fast as the Reserve Bank would like to see, the facts remain - inflation is now 4.7% and falling. Asset markets struggle with high inflation, but moderate and declining inflation provides a positive tailwind for markets.

Elections – The last positive tailwind for 2024 may surprise you. 2024 is a year of elections with more than half of the world’s population going to the polls. Elections create a lot of noise and a degree of uncertainty which can temporarily push financial markets around. However, history shows that election years are typically positive for markets. Looking back across United States’ elections since 1924, the share market ends the year with a positive return 83% of the time. Importantly, this pattern also has relevance here in New Zealand. Since 1972 there have been 14 Presidential elections (including 2024). When those years are positive for the United States share market, they also almost always result in positive returns for New Zealand shares (the exception is 1988 which recorded a small decline).

In summary, my message for 2024 is be optimistic and be invested - the downturn we have seen over the last few years will be the opportunity when we look back to now.