A whole range of factors can affect stock market performance, making it impossible to determine what might happen next. When various world events occur simultaneously, such as changes to monetary policy, world elections, and a cost of living crisis, it creates uncertainty.
This can be nerve-wracking for investors, as uncertainty tends to lead to volatility in stock prices. What’s more, media headlines often fixate on the potential negative effects of this volatility on your wealth, which could cause you to worry.
In our experience, tuning out the noise and focusing instead on historical data relating to stock market trends can be a helpful way to combat fear as an investor. Read on to learn more about global events that could affect the stock market in 2024 and how you can navigate these risks as an investor.
Market experts feel that geopolitical risk is the most likely cause of disruption to stock markets in 2024
Professional Wealth Management polled market strategists and investment officers to discover what they considered to be the biggest risk to stock market performance in 2024.
Almost 70% of those polled believed geopolitical risk was the most likely to affect stock market performance. This was closely followed by the US presidential election, stickier-than-anticipated inflation, and increased tension between the US and China.
Source: Professional Wealth Management
Fortunately, historical trends show that geopolitical events don’t usually impact markets for very long.
The table below shows the impact of several notable geopolitical events since the 1960s on the S&P 500 as they happened, 30 days after the event, and 90 days after the event.
Source: Professional Wealth Management
Past performance does not guarantee future performance. Though, as you can see, even if something of this nature did happen, the associated effects on markets may be short lived.
Economic challenges could have the most significant impact on stock markets in 2024
While geopolitical risks were considered the most likely to affect stock markets this year, it was economic challenges that experts felt could have the most significant impact on returns.
The top result in a poll asking what might have the biggest impact on markets in 2024 was a deeper, more long-lasting recession than anticipated, followed by stickier-than-expected inflation.
Source: Professional Wealth Management
Although inflation has fallen around the world since recent peaks, many central banks continue to take a cautious approach to interest rates. As such, uncertainty around when the banks will start to cut rates continues to affect stock market returns.
In particular, JP Morgan reports that fixed-income government bonds experienced negative returns in Q2 driven by inflation and interest rates.
According to the International Monetary Fund (IMF), the fall in inflation has reduced the likelihood of a global recession occurring in 2024. The global economy has been surprisingly resilient throughout the cost of living crisis, but growth is expected to remain slow for some years.
The IMF expects some regions to struggle more than others. For example, some emerging markets such as China may not grow as quickly as other regions, and this could weigh on markets for some time.
It’s more sensible to base investment decisions on your long-term goals than short-term changes to markets
When stock markets become volatile, or world events threaten to affect returns in different sectors, it’s easy to panic and make rash decisions about your portfolio. After all, it’s human nature to want to protect yourself and your assets from losses.
But, as you likely already know, this is rarely a sensible way to manage your wealth. Panic and fear tend to translate into irrational decisions that may harm your long-term wealth accumulation. Over time, this can hinder your ability to achieve your goals.
Instead, take a step back from the noise of the headlines and revisit the goals you set when you first created your portfolio.
Stock market returns may fluctuate over time, but your goals won’t. Provided your portfolio is appropriately diversified and aligns with your personal attitude to risk, chances are you have already made the important decisions that will mitigate the risk posed by one-off world events.
If this isn’t enough to quell your nerves, the next step is to book a meeting with your financial planner. They can offer timely and trusted guidance about your portfolio and advise you of any changes you could make to give your wealth the greatest opportunity to grow.
