While 2023 was destined for a recession it never occurred and this year some forecasts are expecting a ‘soft landing’ for the U.S. economy. A soft landing could like a very mild recession as inflation lowers and banks cut rates. Experts anticipate the chances of a recession to be less than 50% in 2024 according to survey conducted by the National Association For Business Economics. On the other hand, consumers feel as if the U.S. economy is currently in a recession. Between elevated interest rates, inflation to commodities like gas and groceries and continuous lay off’s, it has been tough for people to tighten their budgets and stay afloat.
Sunaina Sinha Haldea, Global Head of Private Capital Advisory at Raymond James, shares her outlook and top three money savings tips for this year. “As we kick off 2024, investment grade bonds swing back in fashion, offering an attractive risk-return profile of mid-to-high single digit returns. With the prospect of a recession in the UK and US, defensive equity stocks look to fare well, especially in the healthcare, consumer staples and utilities sectors. Meanwhile, investors remain cautious on emerging markets where volatility is linked to the US dollar and inflation,” she said.
Haldea has her eyes on India ast he one emerging market story that looks compelling as India looks to be the net beneficiary of a weaker China and geopolitical tensions surrounding Russia. And within the world of alternatives, the rise of Private Credit is set to continue, with the total market size estimated to grow to $2.3 trillion by 2027. As commercial lending retreats, Private Credit has filled the void and is now a key component of a diversified investment portfolio.
As far as the IPO, late and growth stage markets, Haldea expects more of a rocky return. “The IPO market has picked up steam recently and is poised for an upswing in the second half of 2024, especially if the Federal Reserve opts to cut rates. The IPO market is known for its ups and downs, thriving when the financial scene is robust, and facing challenges during downturns. Whilst the spike in interest rates has injected some uncertainty, especially for growth stocks and, by extension, IPOs, a bounce-back in IPO activity is on the horizon as companies seek crucial funding,” she explained. “Late-stage VC show signs of thawing, especially if the M&A and IPO markets pickup later this year. 2021 marked a record-setting fundraising period for VC funds. Now, in the midst of the typical 18 to 36-month deployment phase, VC funds are deciding where to invest its capital strategically. Meanwhile, growth equity funding looks to be gearing up for a golden era, with innovative companies that held back on fundraising over the past year or so now re-joining the market. This resurgence is anticipated to spark an increase in demand for capital.”
Haldea sees private equity as a stable alternatives exposure as annualized returns exceeded public equity annualized returns by 4.1% in the last 20 years (CAIA), making it a good addition to long term portfolio construction. “Private equity continues to provide stable alternatives exposure. Historically, retail investors haven’t been able to access the asset class, but with the democratization of private equity and platform / channel development, that is changing. Now investors can access it via permanent capital vehicles of private equity funds like Apax or Hg, purchasing stock of fund managers such as Blackstone or Apollo, or investing through various private wealth platforms. Elsewhere, Business Development Companies (BDCs) look compelling with high single digit to low teen returns. It combines attributes of publicly traded companies and closed-end investment vehicles, giving investors exposure to private credit-like investments. BDCs generally offer higher dividend yields than other common stocks due to their favorable tax structure.”
As there as there is a lot of downside and volatility risk in a fully priced market it’s important to remain diversified. Diversification brings down risk and that means no one company or asset class should be overweight in your portfolio.
Do Not Try To Time The Market
Haldea strongly advises to avoid trying to time the market. It is near impossible to call the bottom of the market. Instead you should drip feed your investments over the course of several months to average out your position. “As a long-term investor it is key to invest through the cycle to ensure you continue to grow your wealth,” she added.
Increase Your Emergency Fund
Haldea also advises to increase your emergency fund. Create a budget so that you can keep track of your outgoings and see where you can scale back. Do invest in the things which are important to your development and well-being, but do you really need all those streaming subscriptions? Increase your savings and make sure to put it into short-term cash instruments.