Attaching my notes from Man Group's 2024 Economic Outlook
Interested to hear thoughts
Downloadable PDF at the bottom of the post.
Equities (-0.1%)
- Wall Street forecasting 5% growth S&P 500 in 2024
- Man Group believe this is unlikely:
- As it is following a period of aggressive interest rate hikes at the start of the year and cautious observation following that
- Most unfavourable credit conditions since 2007, per Senior Loan Officer Opinion Survery (SLOOS)
- Unemployment on a slight rise
- Wall Street also projects 140 bps for S&P 500
- Also believed to be unlikely:
- Only 3 years of this level has occurred in the last 30 years (1995, 2010, 2021)
- Wage inflation continuing to stay high
- CPI continuing to rise
- Estimate that earnings will be half Wall Street projections
Bonds (+4.0%)
- Limited magnitude in either direction expected going forward in the short term
- 3 Scenarios:
- Average (35% Probability) -> UST10 @ 4.9%
- Soft Landing (45% Probability) -> UST10 @ 4.3%
- Hard Landing (20% Probability) -> UST10 @ 3.3%
- %'s estimated using different scenarios of interest rate hikes similar to current situation and subsequent 12 month performance
Credit (IG +2.0%, HY +1.8%)
- IG and HY spreads both deemed 'unappealing', particularly HY
- Current spreads are 106 and 387 bps respectively
- Equates to cumulative 5 year default rates of 0.7% and 12% compared to historical averages of 1.0% and 17%, per Moody's data
- Historically, flat S&P 500 has correlation with +50 bps of IG and +170 bps of HY
- This is in line with historical default rate averages, which Man Group suggest is more realistic and corresponds to +2.0%, +1.8% growth respectively
Additional Notes
- Bonds are expected to outperform equities and risk parity should be adjusted accordingly
- Suggested 7 bond to 3 equity units
- Suggestions to avoid equity risk:
- JPY -> selling 40% - 50% below value on USD cross, future performance is dependent on Bank of Japan behavior
- Brent futures -> more in contango, whereas oil is in backwardation. Be wary of demand driven downturn (2008, 2018 cited as examples)
PDF -
Interested to hear thoughts
Downloadable PDF at the bottom of the post.
Equities (-0.1%)
- Wall Street forecasting 5% growth S&P 500 in 2024
- Man Group believe this is unlikely:
- As it is following a period of aggressive interest rate hikes at the start of the year and cautious observation following that
- Most unfavourable credit conditions since 2007, per Senior Loan Officer Opinion Survery (SLOOS)
- Unemployment on a slight rise
- Wall Street also projects 140 bps for S&P 500
- Also believed to be unlikely:
- Only 3 years of this level has occurred in the last 30 years (1995, 2010, 2021)
- Wage inflation continuing to stay high
- CPI continuing to rise
- Estimate that earnings will be half Wall Street projections
Bonds (+4.0%)
- Limited magnitude in either direction expected going forward in the short term
- 3 Scenarios:
- Average (35% Probability) -> UST10 @ 4.9%
- Soft Landing (45% Probability) -> UST10 @ 4.3%
- Hard Landing (20% Probability) -> UST10 @ 3.3%
- %'s estimated using different scenarios of interest rate hikes similar to current situation and subsequent 12 month performance
Credit (IG +2.0%, HY +1.8%)
- IG and HY spreads both deemed 'unappealing', particularly HY
- Current spreads are 106 and 387 bps respectively
- Equates to cumulative 5 year default rates of 0.7% and 12% compared to historical averages of 1.0% and 17%, per Moody's data
- Historically, flat S&P 500 has correlation with +50 bps of IG and +170 bps of HY
- This is in line with historical default rate averages, which Man Group suggest is more realistic and corresponds to +2.0%, +1.8% growth respectively
Additional Notes
- Bonds are expected to outperform equities and risk parity should be adjusted accordingly
- Suggested 7 bond to 3 equity units
- Suggestions to avoid equity risk:
- JPY -> selling 40% - 50% below value on USD cross, future performance is dependent on Bank of Japan behavior
- Brent futures -> more in contango, whereas oil is in backwardation. Be wary of demand driven downturn (2008, 2018 cited as examples)
PDF -
