The mere discussion of rate cuts will drive markets higher
As 2024 begins, Australian market analysts turn their gaze homeward with quiet confidence, believing the ASX 200 is poised to emerge from the long shadow cast by American technology stocks. Cheaper domestic valuations, a stabilising Chinese economy, and a moderating US dollar form the architecture of this optimism — though beneath it runs a familiar undercurrent of uncertainty, where inflation, geopolitics, and the spectre of recession remind us that forecasts are always a conversation with the unknown.
- After years of lagging behind Wall Street's tech-driven surge, Australian equities are now forecast to outpace the S&P 500 in 2024, with the ASX 200 projected to climb between 7,775 and 8,200 points.
- The Australian dollar, long subdued against the greenback, is expected to strengthen to 72–75 US cents as China's recovery lifts commodity demand and the US Federal Reserve softens its rate stance.
- A sharp 10 percent mid-year correction looms as a real possibility, with the ASX potentially dipping to 6,700 before rallying — a reminder that the path to record highs is rarely a straight line.
- Central bank rate decisions sit at the heart of market tension: premature optimism about cuts could unravel rallies, since historically, rate reductions signal economic deterioration rather than celebration.
- Recession, sticky inflation, a faltering Chinese property sector, and geopolitical flashpoints — from Taiwan's election to the US presidential race — remain the live wires that could short-circuit even the most carefully constructed forecasts.
The Australian share market spent 2023 trailing Wall Street, outpaced by the Nasdaq and S&P 500 as American technology stocks dominated global attention. Now, as the new year opens, a broad chorus of analysts believes the tide is turning. Several major forecasters expect the ASX 200 to reach record highs in 2024 and outperform US indices, with AMP projecting 7,775 points and Tribeca Capital forecasting as high as 8,200 — compared to a more modest 4,900–4,950 for the S&P 500. The Australian dollar is also tipped to strengthen, with forecasts ranging from 73 to 75 US cents by year-end.
The case for Australian outperformance rests on three pillars: cheaper local valuations relative to expensive US tech stocks, the strength of resources and industrial sectors, and China's gradual economic recovery driving commodity demand. Tribeca Capital's Jun Bei Liu, who manages over $800 million in assets, sees all three converging in Australia's favour. Betashares chief economist David Bassanese echoes the view, pointing to stretched valuations in large-cap American technology as a headwind for US markets.
Yet the optimism is not without its shadows. AMP's Shane Oliver anticipates a 10 percent correction mid-year before a later rally to record highs, and warns that the Australian dollar could fall as low as 64 US cents before recovering. Gemma Dale of Nabtrade cautions that market enthusiasm about coming rate cuts may be misplaced — historically, cuts follow economic deterioration, not precede prosperity. The Reserve Bank of Australia, holding rates at a 12-year high of 4.35 percent, has signalled that inflation may prove stickier than hoped.
The four forces most likely to shape markets are China's growth trajectory, global interest rate paths, geopolitical risk, and corporate earnings. China's GDP is projected to slow to 4.6 percent growth, weighed down by property sector weakness. Meanwhile, financials and materials stocks carry particular vulnerabilities — banks may have peaked in profitability, and the materials sector has yet to fully benefit from China's reopening. The year ahead holds genuine promise for Australian investors, but it is a promise written in pencil, surrounded by the familiar uncertainties that make markets both humbling and endlessly human.
The Australian share market spent 2023 in the shadow of American tech stocks. While the ASX rose, it lagged far behind the Nasdaq, the S&P 500, and the Dow. But a chorus of market analysts now believe that gap is about to close—and then some. Several major forecasters expect the ASX 200 to not only reach record highs in 2024 but to outperform the broader US market, driven by cheaper valuations at home and a recovery in commodities as China's economy stabilizes.
AMP forecasts the ASX 200 will finish the year at 7,775 points, a 9 percent return including dividends. Tribeca Capital is more bullish, predicting 8,200 points—roughly 10 percent growth before dividends. By contrast, the S&P 500 is expected to reach somewhere between 4,900 and 4,950 points. The Australian dollar, too, is forecast to strengthen. The National Australia Bank sees it trading around 73 US cents by year-end, while Betashares thinks it could climb as high as 75 cents as the US dollar moderates.
Jun Bei Liu, a portfolio manager at Tribeca Capital who oversees more than $800 million in assets, points to three reasons for the expected outperformance. First, Australian resources and industrial stocks should outpace growth sectors. Second, China's return to economic growth will drive demand for commodities and support the Australian dollar. Third, Australian equities are simply cheaper than their American counterparts. David Bassanese, chief economist at Betashares, adds another factor: large-cap US technology stocks have become relatively expensive. Shane Oliver, AMP's chief economist, agrees the ASX should outperform, though he hedges his forecast with a significant caveat. He expects a 10 percent correction along the way—the ASX 200 dipping to around 6,700 before rallying to record highs later in the year. The Australian dollar, in his view, could fall as low as 64 US cents before recovering to 72.
What will move markets in 2024? Analysts point to four main drivers: the Chinese economy, interest rates, geopolitical risk, and corporate earnings. China's real GDP is projected to grow 4.6 percent in 2024, down from 5.4 percent in 2023, as weakness in the property sector and weak external demand persist. Central banks around the world have been raising rates to fight inflation, and markets rallied in December on hopes that cuts are coming. But Gemma Dale, director of Nabtrade at the National Australia Bank, warns that this optimism may be misplaced. Historically, share markets tend to fall after central banks begin cutting rates, because rate cuts signal economic deterioration. She expects US and Australian economies to soften, leading to falling corporate earnings that are not yet priced into current valuations. For the Australian dollar, she sees the Federal Reserve pushing the US dollar lower while the Reserve Bank of Australia takes a "higher for longer" approach, which would support the local currency.
The Reserve Bank held rates steady at 4.35 percent in December, a 12-year high, though it considered another increase. The bank noted that underlying inflation in Australia remains higher than in comparable economies and warned that inflation could take longer than expected to fall to its 2.5 percent target. The National Australia Bank sees a 50-50 chance of one more rate hike before cuts begin later in 2024. Shane Oliver expects the European Central Bank to cut rates around April, the Federal Reserve around May, the Bank of England around June, and the RBA also around June. Jun Bei Liu, however, expects no rate cuts in Australia next year, though she believes the mere discussion of cuts will drive markets higher and support the Australian dollar.
But the upside forecasts rest on fragile assumptions. A recession remains a genuine risk. Shane Oliver's main downside concerns are sticky inflation, a weaker Chinese economy, and geopolitical tensions—ranging from Taiwan's election to a possible US government shutdown in January to the US presidential election in November. Gemma Dale flags particular risks in two sectors: financials and materials. Banks may have reached peak profitability, and as rates bite and the economy weakens, loan delinquencies could rise. Materials have not yet benefited from China's reopening, though the US Inflation Reduction Act is spurring renewable energy investment and hopes for a new commodity boom, despite recent falls in lithium prices. The biggest risk to the Australian dollar, Dale warns, is the return of US exceptionalism—if the global outlook deteriorates sharply, the US dollar could once again become the safe-haven currency and outperform expectations. For now, the consensus is bullish. But the year ahead is studded with trip wires.
Citas Notables
Australian shares are likely to outperform global shares once dividends are allowed for, after underperforming in 2023, helped by somewhat more attractive valuations and, later in the year, easing concerns about Chinese growth.— Shane Oliver, AMP chief economist
At present, US markets are rallying on potential cuts but this seems very optimistic on historical trends. Our expectation is that the US and Australian economy will soften, which will lead to falling company earnings.— Gemma Dale, Nabtrade director
La Conversación del Hearth Otra perspectiva de la historia
Why would Australian stocks outperform American ones after trailing so badly in 2023?
The gap is partly about valuation. American tech stocks got very expensive last year. Australian stocks, especially in resources and industrials, are cheaper. And if China's economy picks up as expected, that's a direct tailwind for Australian commodity companies.
But isn't the US economy stronger than Australia's?
It is, but that strength is already priced in. The real question is what happens when interest rates start falling. Historically, that's when markets struggle, because rate cuts mean the economy is weakening.
So rate cuts are bad for stocks?
Not always. But they signal trouble ahead. The market is betting on a soft landing—cuts without recession. That's optimistic. The analysts I read think earnings will disappoint once the economy softens.
What about the Australian dollar? Why would it strengthen?
The Reserve Bank is likely to cut rates later than the Federal Reserve, or not at all. That interest rate differential supports the Australian dollar. Plus, if China recovers and commodity prices rise, that helps too.
What's the biggest thing that could go wrong?
Recession. If inflation stays sticky and central banks have to keep rates high longer, or if China's economy weakens sharply, the whole forecast falls apart. And there's geopolitical risk—Taiwan, the US election, a government shutdown.
So these forecasts assume nothing goes badly wrong?
Essentially, yes. The analysts acknowledge the risks. But their base case is a soft landing with modest growth. If that doesn't happen, all bets are off.