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After a year in which unexpected events created a wide disparity in global economies, some of those gaps may start to close, says Jack Manley, executive director and global market strategist with J.P. Morgan Asset Management.

Manley said Japan and the U.S. showed surprising strength through the economic turmoil of 2023, while Europe and China underperformed. Value stocks abroad fared well, while growth stocks surged in North America.

“Our theme for 2024 is a convergence of global growth,” he said, “where maybe the U.S. slows down a little bit, maybe Japan slows down a little bit, maybe Europe accelerates, maybe Canada accelerates, maybe China accelerates.”

He said 2023 was marked by economic surprises that kept investors off balance.

“It’s worth taking an inventory of all the things that we thought were going to happen and didn’t,” he said. “Frankly, it’s very humbling [because] things that we thought were going to happen throughout the course of 2023 felt obvious.”

Among them:

  • the Fed would start cutting interest rates in the first or second quarter;
  • the U.S. economy was going to be in a recession;
  • value equities were going to outperform growth;
  • China would emerge strong from its zero-Covid policy; and
  • Japan would continue to underperform.

“None of those things happened,” he said. “And not only did none of those things happen, the opposite of those things happened.”

These surprises, he said, left “an enormous number of dislocations” in their wake.

“If you are a global investor looking at the landscape right now, you need to strike while the iron is hot because these gaps close very quickly,” he said. “So if you’re going to extend duration a little bit, do it now. If you are going to take a value-centric bet, do it now. Because three or four years from now, I think this landscape is going to look very different and a lot of these opportunities that we haven’t seen in decades are once more going to kind of fade back into obscurity.”

Manley said his bullish feelings about 2024 are constrained to areas where he sees potential for outperformance.

The cutting of interest rates — which now looks even more likely than it did last year — is a positive signal for high-quality, intermediate-duration fixed income.

“Something that used to be very boring to talk about a couple of years ago now presents maybe the greatest single opportunity over the next 12 months,” he said.

Falling rates will also be good news for growth equities and from the broader equity market, he said, though he adds a note of caution about high expectations for artificial intelligence and GLP-1 weight-loss drugs, which drove tech growth in 2023.

“I don’t think anybody doubts the ability for these things to fundamentally transform our lives. But I would doubt their ability to fundamentally transform our lives tomorrow, or next week, or next month,” he said. “If anything, there is going to be a massive regulatory hurdle before these things start to enter the mainstream in a meaningful way.”

The catchphrase for 2024 will be “security selection,” he said.

“There are so many dislocations in global markets right now that only a prudent security selector will be able to find those pockets of outperformance,” he said. “So maybe 2024 will be a good year. I think it probably will be. My guess? You’re going to have to work a little bit harder for that outperformance.”


This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.

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