As we head towards the end of 2023, here are the predictions for 2024 from Christopher Crawford, Portfolio Manager of Eric Sturdza Investments’ Strategic Long Short Fund.
The impact of rising interest rates will become more apparent in 2024, as leveraged companies face increasing stress. The market will realise that these risks are not fully reflected, leading to potential concerns about the financial stability of these companies.
Despite recent moderation, inflation will continue to put pressure on consumers, particularly those with middle-to lower-incomes. Essentials will consume a larger portion of this population’s spending, undermining their discretionary spending and adding to the difficulty of obtaining affordable loans for big-ticket items like automobiles. Retailers may then struggle to meet sales expectations as a result.
The top-performing stocks in the S&P 500 risks pose a concentration risk in 2024. Such stocks, considered “inflation-proof,” have outperformed the rest of the market to an extreme degree. However, any correction or decline in these stocks could have a significant impact on the overall market due to their large share in the index.
Traditional automobile manufacturers will continue to face challenges in 2024, including consumer stress, higher labour costs from recent strikes, and competition from electric vehicle (EV) companies like Tesla. On the other hand, EV startups are likely to grapple with production delays, increased capital consumption, and supply chain disruptions. Both segments of the industry will need to navigate these obstacles within a challenging macroeconomic environment.
2024 will bring a reckoning for some companies backed by private equity funds due to higher cost of debt and headwinds to operating performance. Devaluations and decreasing returns will expose companies that have not added significant value and put pressure on allocations to private equity. As financing becomes more expensive, the performance of initial public offerings (IPOs) venture-backed companies will also be closely scrutinised.
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