Two reasons bonds may perform well in 2024

Macroeconomic climates showing a bullish level of growth and consumer confidence, combined with low enough inflation and low enough interest rates to facilitate widespread growth, are synonymous with equities, usually.

So, next year should really be the time of stocks and we should be asking how the stock market will do in 2024, right?

Well, not so fast. It’s true that investors everywhere are gear up for a bull run and the stock prices to match in 2024. But what if that’s not what happens?

Actually, there are a couple of signs showing that 2024 might be a year of stronger performances by bonds – one of the worst performing asset classes in recent years – instead.

How will bonds perform in 2024?

As HSBC Management said in their 2024 investment outlook: ‘bonds are back’. According to them:

Meanwhile, asset manager Abrdn’s global head of fixed income Craig MacDonald said in his latest investment insights that:

Two reasons bonds may perform well in 2024

There are a couple of elements to unpack here. Read on to discover two things to consider which may change your perspective on the bond market in 2024:

1. While the Fed has made all the right noises, inflation is still lurking

When the FOMC made a surprise hint at several possible rate cuts in 2024 during its December interest rate decision, it looked like a very definitive announcement for 2024 being ‘the year of the dove’ with mass rate cuts to take place.

But the truth is that, if the FOMC lowers rates early next year and inflation doesn’t rise up to meet them, it would be akin to a magic trick. That’s why central banks always use rate hikes when inflation is getting high – because it works, for the most part. But inflation is notoriously hard to tame, and interest rate cuts are therefore notoriously hard to bank on (pun intended).

But what does this mean for bonds? In the words of JPMorgan Chase, in their outlook on the 15^th of December:

2. It's not just about America

The United Kingdom, Europe and many more places are also seeing an increase in interest surrounding bonds (pun intended). As the Financial Times reported earlier this month: