Trends we’re tracking: Forecasts, global energy, debt, and inflation

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Wall Street’s non-sensational 2024 market forecasts

The high season of Wall Street firms issuing their 2024 market forecasts is upon us. Most of the major investment banks have issued their 2024 market forecasts and the results are downright non-sensational—a stark contrast to the usual slew of attention-grabbing forecasts. According to Bloomberg, as of November 20th, the day the S&P 500 closed at 4547.38, the median forecast for the index to close at the end of 2024 is 4500, essentially predicting a flat year for the stock market in 2024. More surprisingly, the range is strikingly narrow, from a low of 4400 to a high of 4750.1 Just a couple of days ago, Bank of America and JPMorgan issued their forecasts, with the former predicting 5000 for the index’s 2024 end close and the latter forecasting 4200. Still, the range is quite narrow. For comparison, their forecasts for 2023 made a year ago are as follows: Median 4000, Low 3400, and High 4500.2,3  

What should we make of these forecasts? First and foremost, we should take these forecasts with a giant grain of salt. Markets are inherently hard to predict and the track record of market predictions is not impressive. That being said, it is helpful to be aware of market predictions as they convey the message of market sentiment for the time being, which is cautious and noncommittal based on the near-flat and the narrow range of forecasts. The upshot is that these non-sensational forecasts may bode well for 2024 from a contrarian perspective, as it is a good setup for the potential for pleasant surprises.

Global energy transition at a confused crossroads

As the 2023 United Nations Climate Change Conference (COP28) kicks off in Dubai, several developments could reasonably strike an observer as contradictory. The conference is taking place in a petrostate that has reportedly used its turn in the rotating presidency to push fossil fuel interests.4 However, in the runup to the event, the world’s largest historical emitter, the United States, and the largest current emitter, the People’s Republic of China, agreed to “pursue efforts to triple renewable energy capacity globally by 2030,” a key milestone that is necessary, but not sufficient, to reach net zero emissions by 2050.5 Deployment of renewable energy is also smashing records, but humanity is falling woefully short of meeting the 2015 Paris Agreement goal of limiting average global temperature increases to 1.5 degrees Celsius over pre-industrial levels.6,7  

Perhaps no single country exemplifies the promise and peril of the transition to a zero-carbon economy more starkly than China. As Heatmap notes, “China’s combustion of coal alone accounts for 25% of all energy-related emissions in the world,” and over 60% of its electricity is sourced from coal-fired generation.8 At the same time, China is indisputably dominant in the production of the technologies necessary to reduce emissions, most notably solar photovoltaics (PV) and batteries, but it also leads in electric vehicles electrolyzers, and wind turbines. In March 2023, BloombergNEF estimated Chinese manufacturers held 83% market share in solar modules, vastly outpacing runners-up, Vietnam (4%), India (2%), and the United States (1%). The country is widely expected to install as much solar PV capacity in 2023 as the U.S. has ever installed. While U.S. plug-in hybrid and battery electric vehicles are expected to hit a record 9% of new car sales in 2023, this EVs already constitute 1/3 of sales in the world’s la gest car market (i.e., China).9 In brief, policymakers in Beijing have the means to move faster than their stated goals, potentially pushing carbon emissions into structural decline, if they can overcome the powerful coal lobby’s calls to soft-pedal the transition.10 

As the calendar turns on what will almost certainly be the hottest year in recorded history, the stakes could hardly be clearer.11 Failing to accelerate mitigation efforts to a pace consistent with meeting the Paris goal of 1.5 degrees of warming is certain to induce even more deadly drought, flooding, wildfire, and heat than 2023 visited upon the planet and its inhabitants. Beyond the immediate threats to human welfare, property, and biodiversity posed by these increasingly severe and frequent events, recent research suggests climate change is already exacerbating inflation, with higher crop prices and flood insurance rates for homeowners just two examples of cost increases.12,13 On the other hand, while mitigating climate-warming emissions will not bring the climate back to its unaltered state, which would (at a minimum) require vastly scaled up deployment of direct air capture, such efforts will boost economic growth, accelerate the buildout of nascent industries and employment therein, improve air quality, and reduce human suffering versus a business-as-usual scenario. What this COP will reveal is whether the consensus of the world’s governments lies with sloth or speed.

Buyers of government debt 

In recent months, we have noticed shifting demands for US Treasuries. While these changes are marginally small, they could impact how future government spending is financed. The most notable shift in demand for Treasurys is the amount of foreign buying. The amount of debt owned by foreign investors and central banks as a percent of outstanding Treasurys is at 30%, down from 43% a decade ago. Over the past few months foreign buyers purchased about $100 billion less a month then they did for much of last year. China and Japan, two major sources of long-time demand, have been selling their treasury holdings in an effort to support their local currencies in the face of a strong dollar. China has been diversifying its portfolio by moving into debt issued by U.S. government backed agencies. Furthermore, geopolitical friction has led China to try and de-dollarize its foreign trade, resulting in more limited demand and leading many to expect that China and Japan will no longer be net buyers of US Treasurys. Even here at home, the Federal Reserve Bank, who already owns a larger share of Treasurys, has also been reducing its portfolio at a rate of about $60 billion a month.14,15,16    

However, it is not all bad news, as there has been renewed interest in Treasurys, particularly in shorter term issuance as investors are attracted to the high yields and lower interest rate risk, relative to longer term issuances. 

The major concern with the shifting dynamic is that the renewed interest in U.S. debt is from highly price sensitive buyers who are not likely to be as reliable as foreign central banks have been in the past. Previously there was little concern with issuing more debt as there was seemingly a limitless demand for US Treasurys, but now these entities are slowing incremental purchases. All the while U.S. debt is being issued at record levels. Should these trends continue, many worry that a larger portion of future government spending would need to be financed by the Fed, causing our own central bank to own an ever-growing share of government debt that could ultimately undermine its credibility.

Cooling inflation drives market surge, Wall Street split on rate cuts

A lower inflation reading in October of 3.2% for the Consumer Price Index (CPI) from a year earlier led a widespread equity and bond market rally in mid-November. On the day of the release, the S&P 500 Index rose 1.9% and the 10-Year Treasury Yield traded down 19 bps as investors bought up bonds. Small cap stocks surged even more, with the Russell 2000 Index gaining 5.5% on the day. The overarching market sentiment was that the Federal Reserve was likely done with interest rate hikes and that the hard part of its battle with inflation was over. The Federal Reserve has been focused on taming multi-decade high inflation with aggressive monetary tightening, hiking the Fed Funds Rate by 525 basis points since March 2022. However, economists and the average consumer are certainly feeling inflation’s path differently.17  

Higher costs continue to be felt by consumers, even as inflation levels have come down from multi-decade highs of 9.1% in June 2022. This is especially true heading in the holiday season, with many costs up over 25% since 2020. In response to criticism of inflation burdening Americans, President Biden focused on the corporations, with a message for them to stop gouging prices, as the White House attempts to connect lower economic data readings with consumers.18 Heading into an election year, we will continue to hear more about inflation and its impact on consumers from candidates of both parties. 

Looking ahead to 2024, Wall Street economists are forecasting interest rate cuts while the Federal Reserve is not declaring victory over inflation just yet. UBS and Morgan Stanley view a more aggressive path of rate cuts, expecting multiple cuts next year starting as early as March; meanwhile Goldman Sachs is predicting a more conservative approach with only one 25 basis point cut in their forecast for 2024. Fed Funds futures are currently pricing in 100 basis points of cuts for 2024, which could be largely disappointing should only one or no cuts take place.19 Inflation, the consumer response to it, and interest rate policy will continue to largely drive global markets and performance across asset classes. The risks to watch are a potential policy misstep, the return of inflation, and market participants misjudging the path of inflation or interest rates. 


1Lu Wang, Strategists’ S&P 500 Index Estimates for Year-End 2024 (Table), Bloomberg News, November 20, 2023
4UAE planned to use COP28 climate talks to make oil deals (
5U.S. and China Agree to Displace Fossil Fuels by Ramping Up Renewables - The New York Times (
6Chart: Global renewables deployments to hit record… | Canary Media
7The World Is Falling Short of Its Climate Goals. Four Big Emitters Show Why. - The New York Times (
8China’s Wildly Complex Energy Transition, Explained in 8 Charts - Heatmap News
9US EV sales to hit record this year | AP News
10Analysis: China’s emissions set to fall in 2024 after record growth in clean energy - Carbon Brief
11COP28: United Nations Calls 2023 Hottest Year Ever - Bloomberg
12The impact of global warming on inflation: averages, seasonality and extremes (
13Extreme floods are happening way more often than federal data would suggest, analysis shows | CNN

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