There is an old adage that says ‘the best time to be bullish is when everyone else is bearish’, as all the bad news is priced into markets. The past calendar year has been one such time. At the onset of 2023, prevailing sentiment was overwhelmingly pessimistic, due to the anticipation of a looming global recession against the backdrop of increasing geopolitical tension and the highest inflation since the ‘70s.

Following the surprisingly strong returns of risk markets last year, consensus market views have shifted to the other extreme, with most pricing in positive outcomes in 2024. Interestingly, the old adage above also runs the opposite direction, ‘the best time to be bearish is when everyone else is bullish’. 

As we head into the new year, the US cycle adjusted price-earnings ratio (CAPE) is over 30x, higher than 97% of all historical valuations and the forecasts earnings growth is over 18%. This combination of high valuations and high expectations gives the investment team at Cameron Harrison pause for concern. Are the current higher valuations sustainable? How achievable are the forecasts earnings growth in a faltering economic environment?

In our view, prevailing valuations and earnings projections are pricing in a ~90% chance of a soft landing (no recession) in 2024. However, we see the likelihood of this scenario as evenly split, a 50/50 chance. On this basis, our overall stance is to maintain a conservative allocation in equities, at the bottom of our strategic range, with a preference for more secure, interest-bearing investments.

To read our in-depth report, click on the following link: https://bit.ly/EquitiesOutlook2024