Being identified as “Positive Pete” by many of my media and market colleagues is a nickname I’m happy to live with, given my role as a self-appointed finance educator. Of course, there are times when I am negative. But I’m probably positive 80% of the time. And there are strong reasons for my disposition.
These reflections are timely as I recently wrote a piece for the subscribers to my Switzer Report newsletter for self-directed investors, who largely are looking for tips on good stocks to buy. I argued that 2024 should be good for stocks. Happily, Paul Taylor, head of investments at Fidelity International, agrees with me and said so in the AFR over the weekend.
The two of us can come up with this positive view for stocks despite high interest rates, wars in the Middle East and Ukraine, talk of potential recessions in Western economies after interest rates have exploded higher to kill inflation, as well as the lingering threat of inflation, especially here in Australia. And yet Paul Taylor and I can see good reasons to expect we will make money out of stocks next year. So, how come?

Here is Mr Taylor’s explanation in a nutshell:

1. He thinks the stock market is in a “shoot first and ask questions later” phase but,
2. It will eventually the concerns that dominate the market now, will give way to a more rational re-evaluation of the individual qualities of companies.
3. He thinks we should see a more “discerning approach” from investors next year.

4. Helping this happen will be inflation coming under control, less geopolitical tensions, better Australia-China relations. (And I’d add a stronger growing China.) As we move into 2024, there are positive factors for the market.Inflation will be more under control and while interest rates may not be coming down, they may be at least starting to stabilise. Geopolitical tensions and conflict will still be prevalent, but there seems to be signs of a warming relationship between Australia and China that could lead to an improved trade environment.
5. Taylor and his team at Fidelity see an economic slowdown here but not a recession.
6. Sectors such as insurance, building and construction, communications, healthcare, diversified financials and some consumer staples should remain strong or improve through 2024.
7. He wraps it up by talking about the strong points about the Australian economy and why it’s worth investing or ‘betting’ on, as Warren Buffett says of the US. He reminds us that Australia has been one of the best-performing equity markets in the world, helped by “…population growth, corporate governance, a large and low-cost natural resource base, high dividend yield (driven by franking credits) and high real dividend growth (helped by capital discipline). These long-term structural drivers are still very much in place and should reassert themselves in 2024 as conditions continue to stabilise.”

Importantly, Paul Taylor gives us the insights of someone who has experience with stock markets. This quote is reflective of that experience: “The good news for investors in 2024 is that a lot of the risk has now been factored into markets – geopolitical, recession fears, interest rates, inflation, regulation, taxation. There are still headwinds, but this kind of environment is generally a great time to invest, and I can’t help but get excited that I can now buy the market at a much better risk-adjusted price, which will likely deliver much better longer-term returns.”

Of course, Taylor and I could be wrong, but high interest rates have hurt a lot of good quality companies and so has the “shoot first, ask questions later” approach that has hurt stock markets over 2022 and 2023.

If you buy quality companies at historically low prices and don’t put all your eggs in one basket, but instead divide your investment funds between a number of stocks, 2024 should prove a good year for making money.