Inflation, growth and central banking policy will steer markets in 2024, according to Sebastián Velasco, director at Fidelity in Spain. This mix is not new for investors, dating back to the wake-up from Covid in 2022. Europe faces persistent economic weakness, highlighted by ECB forecasts around 0.8% and IMF projections near 1.2%. The United States isn’t immune either, with the IMF predicting roughly 1.5% GDP growth. If inflation cools, central banks could pause rate hikes or even ease, a move the Fed has signaled on multiple occasions for 2024. The big question remains: when will the ECB start cutting rates? Sentiment across equities shows growing optimism.
Technology and artificial intelligence, the best option
Major global indices like the MSCI World and the S&P 500 could test new highs in the coming year. “There are buying opportunities during any pullback,” notes Joaquín Robles, an analyst at XTB.
Experts broadly agree that tech and AI-related firms will keep leading markets. Wall Street remains home to the famed Magnificent Seven — Microsoft, Alphabet, Amazon, Apple, Meta, Nvidia and Tesla — while there are influential players beyond the New York Stock Exchange, including Samsung, Tencent and Alibaba in Asia, and European players such as SAP, Accenture, ASML and NXP Semiconductors.
One portfolio perspective from a market strategist: 50% in S&P 500 equities including large tech names, 25% in EuroStoxx50 with emphasis on banks and defense, and the remaining 25% in the Nikkei, a comparatively underappreciated yet solid performer, according to iBroker analyst Antonio Castelo.
The Nasdaq 100 in the United States has benefited from a period of low rates, delivering an impressive long-run return. Over the last decade, the index rose about 358%, equating to roughly 35.8% annualized. That performance surpasses many European and other global peers. Victor Alvargonzález, founder of Nextep Finance, suggests that a stable or easing rate scenario fits these tech gains, barring unexpected events.
What truly matters, however, is diversification and professional guidance. “The weakest performing sectors in 2023 were electricity utilities and real estate,” notes Luis Francisco Ruiz of CMC Markets. Diversification remains a core theme as investors navigate uncertainty.
Opportunity for the most conservative
Fixed income performed well in 2023 and is expected to keep offering safe options for cautious savers who want liquidity without taking on heavy risk. The era since the 2008 financial crisis created a long stretch of easy money that still informs current pricing and risk attitudes.
Prospective investors are weighing debt from Spain, Germany and the United States, preferably in dollar terms. Dídac Pérez, investment director at Caja de Ingenieros, notes that even shorter-term government papers and certain high-quality corporate bonds offer yields above inflation. For example, three- to six-month Treasuries have yielded around 3.7%, delivering higher returns than typical deposits while maintaining minimal risk, with a projection of close to 4% for some longer maturities when issued by strong issuers. Castelo emphasizes a three- to five-year horizon as particularly attractive versus longer maturities.
Another path for stability is avoiding longer time horizons and focusing on ETFs that track fixed income but have no fixed maturity. With prices near decade lows, high-quality issuers’ bonds can offer yields above 4%, a strategy Robles suggests via fixed-income ETFs.
Advisors often stress that fixed income should anchor risk, while returns are pursued in equities. Junk bonds are viewed skeptically due to refinancing pressures and the risk of rolling maturities, Ruiz cautions.
Scarcity affects prices
The brick-and-mortar market will slow in major cities through 2024 because of tight supply and higher mortgage costs. This creates openings for smaller buyers with liquidity to acquire homes or parking spaces in Spain’s core cities. Rents could rise as leases are renewed next year, possibly by as much as 3% from current levels, tracking inflation near 3.2%.
Smaller opportunities exist in boutique real estate projects and smaller residential or mixed-use developments in urban cores. Alternative spaces such as garages and warehouses also offer potential returns. Ignacio Ortiz de Andrés of Activum highlights niche opportunities for high-net-worth investors, including land in flagship urban areas and dynamic coastlines like the Costa del Sol. Within sectors, traditional housing, senior living, student housing and rental buildings present avenues for growth. Paloma Relinque of CBRE Spain points to cross-sector opportunities in 2024, especially for high-quality, green projects that attract stronger demand. Aging populations, mobility and digitization are accelerating shifts in several sectors, with healthcare facilities, nursing homes and training centers expected to see more investment.
Investors seeking brick-and-liquid exposure might consider funds, listed developers or Socimis. Ortiz notes these options are accessible to both small and large players and can be a practical complement to direct property ownership.
Diversify to take and hedge risks
Cryptocurrencies rebounded in 2023. Bitcoin, having erased 2022 losses, hovered near the $50,000 mark on optimism about exchange-traded crypto funds and a looser monetary stance. The year’s standout performer among crypto assets rose about 160%. Yet, volatility remains a concern, and early buyers who invested on January 1, 2022 still face unrealized losses around 7%.
Bitcoin has shown it is not a safe haven, having fallen sharply during inflation spikes and market stress. The lack of clear regulation and limited acceptance as a payment method continue to temper enthusiasm, Robles notes. The crypto space has faced scandals and intermediary failures that dampen confidence, even as interest and participation persist.
Turning to more traditional assets, gold and silver have drawn renewed attention. Analysts point to gold’s role as a diversifier during periods of shifting real yields, while silver remains tethered to industrial demand. A diversified portfolio typically benefits from including these metals, given their different correlations with equities and bonds. Casto adds practical weight to their case, citing ongoing industrial uses across electronics, medicine and energy sectors.
2023 is an unusual year
The year closing out is remembered for strong stock-market gains and the rebound in bond profitability since the 2008 crisis. The year also delivered gold and a resurgence for Bitcoin after a 2022 slump, with Terra and FTX failures leaving lasting lessons. Geopolitics, including the Ukraine and Palestine conflicts, and banking stress in the United States, shaped sentiment even as some Western economies faced recession risks. HSBC now owns Credit Suisse, highlighting ongoing consolidation in global finance.
Money costs normalized in February, with interest bill auctions drawing queues outside central banks and treasury offices. Ordinary households began to hold a larger share of short-term government debt, while investment by families in core equities remained robust. The Spanish market saw notable momentum, with banks and other financials lifting the Ibex 35 after years of underperformance. Managers hope 2024 will preserve fixed-income opportunities even if rate paths soften.
Spain’s stock market delivered one of its best performances since 2013, driven in part by a strong rebound in technology leaders. The Magnificent Seven of the U.S. tech giants led gains, while the broader S&P 500 and Nasdaq showed substantial improvement compared with 2022, aided by AI developments and a more favorable rate environment. These dynamics underscore the resilience of large-cap technology while signaling continued volatility and the importance of prudent diversification.