2023 was a turbulent year for investment markets. While initial forecasts feared that we were in the grips of 1970s-style stagflation, globally, we have so far coped remarkably well with higher rates. This, coupled with signs that pandemic-related inflation is easing, means that the market narrative has shifted to the upside as we close the year. While market volatility continues to pose challenges to forecasting, two of J.P.Morgan Asset Management’s Investment Trust managers consider how they see markets faring in the year ahead on either side of the pond.
“2024 may tell a tough story for the US economy, which means focusing on quality is key”, says Felise Agranoff, portfolio manager of the JPMorgan American Investment Trust
“As we reach the end of the year, many investors looking at the USA will be relieved that we haven’t yet experienced the long-awaited recession that many forecasts expected. This is largely due to the strength of the US consumer, with domestic spending proving to be a robust source of resilience and growth, despite rising interest rates.
“However, we aren’t out of the woods just yet and it is likely that 2024 will tell a tougher story for the US economy. Growth looks likely to weaken in comparison to 2023 as consumers truly start to feel the pinch of interest rates. It remains to be seen over the course of 2024 how resilient corporate margins will prove to be. This is why for us, quality is of central importance, rather than style bets. Free cash flow in US companies is 11 times higher than in the rest of the market, which is crucial if margins and earnings come under pressure in 2024, as these companies can maintain quality balance sheets.
“The dominance of the Magnificent Seven has resulted in growth outperforming value this year, however, for us it is always about having a ‘best ideas’ portfolio rather than focusing on style. We have exposure to the Magnificent Seven through Meta and think it looks attractive on a PE multiple, with third quarter earnings being the best in the history of the company.”
“The UK domestic economy has proven to be far more resilient than many anticipated”, says Guy Anderson, portfolio manager of the Mercantile Investment Trust
“While the narrative surrounding the UK and its economic performance has been almost uniformly negative through 2023, the economic reality has been far better with the domestic economy proving to be more resilient than many expected. As we look ahead into 2024, while the risks cannot be ignored, particularly from inflation and tighter financial conditions, this is more than reflected and priced into many UK stocks. Furthermore, there are reasons to believe that much of the price insensitive institutional selling is at or at least close to an end, and the removal of this overhang could only be a positive.
“Our view is that now is an opportune moment to be investing, and in the mid- and small-cap part of the market we are finding many attractive opportunities that we expect to deliver over the long-term. Many corporate buyers seem to agree with our view, given the recent number of acquisitions of UK companies, and the sheer volume of share buybacks currently being undertaken across the UK market.
“We are excited about some of the domestic consumer facing sectors. While sentiment is negative and valuations are extremely low, prospects may be improving. For example, inflation has fallen compared to last year, and employment and wage growth are still reasonable. As a result, the UK consumer in aggregate is now experiencing real wage growth again and we are seeing gradual improvements in consumer confidence. As a result, we prefer companies that can benefit from market share gains, such as Dunelm, Jet2 and WH Smith.”
