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In 2024—an election year—we are seeing intensifying geopolitical tensions in the United States and worldwide. At the same time, it is still being determined whether the Federal Reserve can steer the U.S. economy toward a soft landing through interest-rate policy. Moreover, a global recession remains a possibility.
Against this backdrop, we consider two potential scenarios for market behavior. The base scenario points to a resumption of global growth, and is therefore viewed as positive. The alternative (non-base) scenario assumes a greater realization of economic and geopolitical risks, and can therefore be considered negative.
Base scenario — Soft landing
The positive scenario assumes a continued improvement in macroeconomic indicators: inflation declines sufficiently for central banks to begin cutting rates. In this case, the U.S. Federal Reserve holds its policy rate steady until the June meeting and then proceeds with systematic cuts. As a result, in the first half of 2024, fixed-income assets (government bonds and other securities) and equities may see weaker demand amid uncertainty, with a preference for defensive assets such as gold and Bitcoin.
Business cycles tend to lead economic cycles, so a rebalancing of global assets is expected to begin in early March. The most likely catalyst for investors would be the March 19–20 Federal Reserve meeting, accompanied by the Summary of Economic Projections and corporate updates during earnings season.
While the U.S. economy remains the primary driver of global financial markets, developments elsewhere also matter. With macro indicators improving, we may see a moderate recovery in European manufacturing activity and an improvement in the UK labor market. The Bank of Japan may signal its intention to raise its policy rate in the second half of 2024. A reduction in geopolitical tensions in active conflict zones would likely reinforce these trends.
Kar Yong Ang, Octa’s financial markets analyst, said that traders’ tactics should focus on the uptrend in gold and Bitcoin from the start of the year through mid-March—the period ahead of the two-day U.S. Federal Reserve meeting. The analyst added: “From late March to early April 2024, traders should sell the U.S. dollar across all major currency pairs.”
Alternative scenario — Recession not ruled out
Dollar income
The labor market is critical in determining whether conditions shift from a soft landing to a hard landing. In that case, even if inflation stabilizes, we would see how the economy fails to withstand the aggressive pace of rate increases. This would continue to weigh negatively on bond yields and spill over into all segments of the financial market. Companies would likely try to reduce labor costs, which would further weaken consumer spending.
By mid-2024, we would still be dealing with high interest rates, driving a significant rise in unemployment, consumer credit stress, and mortgage delinquencies. In the second half of 2024, the impact would spread from consumers to the corporate sector and then into broader macro indicators—by year-end, corporate earnings would fall sharply and unemployment would be rising.
By September 2024, conditions could become so uncertain that central banks return to the long-forgotten tool of quantitative easing (QE) to support companies and the labor market. Separately, in such an environment, the Bank of Japan is unlikely to abandon its negative interest-rate policy, offering implications for USD/JPY dynamics in 2024. Alongside global economic instability, geopolitical tensions would also persist.
Kar Yong Ang, Octa’s financial markets analyst, said: “Due to high interest rates, investors will continue to use defensive assets until September 2024. Traders’ tactics should reflect this—betting on sustained gains in gold, oil, gas, and Bitcoin.” After the September events, uncertainty would increase significantly, as the effects of hypothetical QE would not be immediate. In addition, the final stage of the U.S. election cycle would make the outlook even less predictable.
These scenarios follow the same path from early 2024 until mid-March. After that, market dynamics can be characterized as either risk-off or risk-on. Awareness of the underlying trends and an understanding of emerging patterns can present attractive trading opportunities under either scenario described for 2024.
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