Lara Rhame, Chief Economist for FS Investments, joined Keith Black, Managing Director of RIA Channel, to discuss her outlook for the 2024 US economy.
Markets in 2023 benefited from an economy that is still strong. The consumer has liquidity from excess savings, fiscal stimulus, and a strong jobs market. Rhame notes that those tailwinds are likely to subside, leading to slowing growth expectations. In fact, Rhame believes that there is a fairly high probability of a recession in 2024.
Each recession is different in character. While the GFC centered on the real estate sector, today’s commercial real estate market is in much better shape than experienced in 2008, as interest coverage ratios and leverage as measured by loan-to-value are at much more responsible levels today. Since 2008, there has been a substantial increase in private investment, and substantial dry powder is available to absorb the financing needs of today’s economy.
Rhame forecasts that traditional stock and bond markets are likely to be challenged in 2024. As nominal growth disappoints, forward earnings estimates can be revised lower, leading to a weaker equity market. As the Fed remains hawkish and talks down market expectations of a 2024 rate cut, interest rates are likely to rise.
With these headwinds in the public stock and bond markets, private markets are likely to outperform. Investors are encouraged to seek private market investments that provide both growth and income. Real estate credit can provide stable income, while strong growth opportunities can be found in the middle market.
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