4 Big Investing Stories to Watch for in 2024

You can't know everything the future might hold, but one thing is certain: the coming year will be full of storylines that could impact the way you invest.

Some of the big news that will mark 2024 will come out of seemingly nowhere (remember last year's Silicon Valley Bank collapse?), but there are a few key stories that are expected to play a big part in shaping the year ahead.

Here are four topics to keep on your radar in 2024.

Interest rates

If the story in 2023 (and 2022) was one in which central banks aggressively increased rates to get inflation under control, 2024 could be more a story of moderation. There is a growing sense in Canada and the U.S. that interest rates have peaked, with many experts now saying rate cuts could be on the horizon.

In a recent episode of the RBC Capital Markets podcast Strategic Alternatives, Blake Gwinn, head of U.S. rates strategy at RBC Capital Markets, said “the U.S. Federal Reserve (the Fed) won't hike again unless inflation reaccelerates. So, the timing of cuts is the new story." He believes the Fed will likely change gears to avoid a deep recession, even though inflation, despite cooling, remains above the central bank's 2 per cent target. As of December, the market was pricing in up to five 25-basis point cuts in 2024.

There's reason to believe the Bank of Canada (BoC) may cut rates, too. According to the summary from the BoC's December meeting, officials said that rates are “sufficiently restrictive" to get inflation under control. Still, if cuts happen, they won't happen immediately. RBC economist Carrie Freestone and colleagues expect the BoC to reduce rates by 25 basis points in each of the second and third quarters, then another 50 in the fourth, bringing rates down to 4 per cent by the end of 2024.

Generally, interest rate reductions are positive for equity markets. That's partly because consumers and businesses won't have to set aside as much money as they are doing now to service their debts – money they can start spending again. If rates fall enough – to a point where there's more total return potential in the stock market than the bond market – interest rate-sensitive sectors, such as financials, utilities and other dividend-paying companies, could benefit, too.

Market moves

The stock market's ups and downs are always big news, though they're also impossible to predict. Markets could certainly still climb in 2024 – the S&P 500 rose by more than 24 per cent last year and the S&P/TSX composite index climbed around 8 per cent – especially if consumers start spending more and a recession is in the rear-view mirror, but there's also a case to be made to remain cautious.

According to the RBC Wealth Management Global Insight 2024 Outlook report, the U.S. equities market “seems positioned for a rosy scenario." Analysts are projecting consensus earnings for the S&P 500 at $245 per share in 2024, an 11.4 per cent year-over-year increase. The market's price-to-earnings ratio is also above average, the report notes, leaving “little wiggle room for economic disappointments." However, it notes “when recessions play out, consensus estimates typically come down and profits contract for at least a couple of quarters."

What about bonds? Between higher yields and some capital appreciation at the end of 2023 as longer bond rates declined, many investors did well owning the asset class. Many are predicting this year's story could be one of even better returns, especially if rates continue to fall, which would then increase bond prices.

RBC Wealth Management's 2024 Outlook report points out that “yield only explains about 40 per cent of the bond market's performance in any given year; the rest comes from price movements, and that's where additional performance could come from."

Geopolitics

Geopolitical issues dominated newscasts in 2023, and that's not expected to change in 2024. But there's much more to international relations than armed conflict. RBC Economics, in its Navigating 2024: Reset & Revival In A Reshaping World report, writes that “geopolitics has replaced economics as the top consideration in trade policy. Relationships, alliances, and blocs are of increasing importance, with issues of security, technology transfers, and supply chain resilience front of mind."

One source of anxiety among countries is access to key energy-transition-related critical minerals, like rare earths, copper, cobalt and lithium. With China controlling much of these markets today, more countries are looking to Canada to source these commodities. At the same time, RBC Economics expects Canada to look for ways to smooth stained relations with economic powerhouses India and China.

As is often the case, geopolitics could sway energy and commodity markets while also creating more volatility in broader bond and stock markets if conflicts – physical and trade-related – increase.

Climate

In late December, the Federal Government mandated that all new vehicles sold in Canada must have zero emissions by 2035. While some question whether automakers can deliver on that goal or if the necessary infrastructure can even be put in place within that timeframe to power that many electric vehicles (EVs), the announcement itself is a sign that the push to lower emissions will likely accelerate this year.

RBC Economics says to watch for increasing tensions between the federal government and the provinces as Canada looks to lay the groundwork for a new energy economy. Inflation and interest rates could also dictate the pace of change, potentially affecting the cost of clean projects and the overall attractiveness to investors. Climate policy regression is the real global risk, but at the recent COP28, a United Nations-sponsored climate conference held in Dubai, nearly 200 countries approved measures to reduce their reliance on fossil fuels, including tripling the world's renewable energy capacity by 2030.

While this isn't a 2024 story alone, if the fight against climate change does indeed ramp up this year, investors may find opportunities in companies making meaningful reductions in their greenhouse gas emissions. Also, businesses engaged in infrastructure improvements, including around EVs, could be of interest to investors. Robert Kwan, an equity analyst at RBC Dominion Securities, said at the 2023 RBC Global Energy, Power, and Infrastructure Conference that “the energy transition is giving companies lots of opportunities to invest in their core businesses, as well as leveraging off of their existing infrastructure footprints to generate new opportunities to help their customers decarbonize their operations."