RBC Wealth Management Forecasts A Mild Recession and Bond Market Recovery in 2024

RBC Wealth Management's recently released Global Insight 2024 Outlook indicates that aggressive rate hikes by the Federal Reserve may hamper GDP growth and usher in a minor recession in the early months of 2024. In contrast to a sluggish equity market, bonds are expected to make a significant comeback.

Economic Outlook and Stock Market Prospects

Investors are warned of a challenging period ahead, with the U.S. stock market likely to encounter an array of political and economic challenges. This suggests that investors should stay alert and flexible in their investment strategies. Furthermore, the S&P 500's high valuation sets a narrow margin for error, reflecting limited room for economic underperformance.

Regardless of potential downturns, history shows the market often recovers during recession phases, suggesting that long-term investors might see these downturns as opportunities. Analysts recommend maintaining a Market Weight in U.S. equities for balance as 2024 approaches. There is also an expectation for a broadening of market performance, stretching beyond the leading tech stocks and sectors that dominated in 2023. Portfolios should lean towards undervalued, high-quality stocks with sound fundamentals.

The Revival of the Bond Market

After a prolonged downturn, the bond market shows promising signs of a rebound. With the Bloomberg U.S. Aggregate Bond Index nearing a 5.5% yield, expectations are for an average return of 6.6% in 2024, considering both yield and potential price appreciation. The 10-year Treasury yield, in particular, is forecast to decrease, which could lead to significant price gains on top of the expected yield.

However, caution is advised, as sectors with lower credit risk are likely to outperform those with high-yield corporate bonds and municipal bonds, the latter currently deemed overvalued compared to Treasuries. As economic growth cools, the return to more typical valuations might make high-yields and municipals less attractive.

About RBC Wealth Management – U.S.

RBC Wealth Management is a division of RBC Capital Markets, LLC, with over $544 billion in client assets across 42 states. It operates as a full-service brokerage firm and is part of the Royal Bank of Canada, one of the largest banks globally by market capitalization, serving over 17 million clients.

recession, bonds, equities