Turmoil ahead: 2024 trends that will keep retirement investors up at night

Investors see a range of threats on the horizon in 2024, including the continued potential for a recession, turmoil in international markets and market volatility driven by a contentious election year at home. Natixis Investment Managers surveyed 500 institutional investors, who collectively manage $23.3 trillion in retirement and other institutional assets, to find out what keeps them up at night as they look ahead to 2024.

“The markets have demonstrated tremendous resilience in absorbing a sharp rise in rates, inflation, and two wars so far in 2023,” said Liana Magner, executive vice president and head of retirement and institutional for Natixis IM in the US. “While institutional investors anticipate plenty of headwinds in the year ahead, few are lowering their assumed rate of return for 2024, and long-term return expectations remain solidly at 8% on average.”

Recession ahead?

On the macroeconomic front, those surveyed indicated they are worried about slowing consumer spending. About half said they think a recession is inevitable in 2024, and three-quarters of that group said they think a coming recession will be painful or very painful. One-quarter are more optimistic, saying that the effects of recession will be barely noticeable. Meanwhile, 37% of survey respondents said they don’t foresee a recession in the next year, more than double from the 15% who did not anticipate a recession in 2023.

Those who anticipate a recession disagree on when it will happen: 39% expect a downturn in the first half of 2024, while 42% project recession in the second half. One in five think a recession won’t materialize until 2025 or beyond.

Market uncertainty

Two-thirds of institutional investors said uncertainty in the markets will prevail during the next year, and respondents were nearly evenly split on whether to be bearish or bullish on stocks, with a slight edge to those who are bearish (54% vs. 46%). The uncertainty of the economic picture factors heavily in institutional investors’ market outlook for 2024. Almost six in 10 (59%) are projecting higher levels of volatility for equity markets, while 39% see a similar uptick for bonds.

Interest rates and inflation

Inflation and interest rates will continue to influence institutional views on the economy. Despite some deceleration during 2023, inflation remains above the pre-pandemic norm. While 40% of respondents said they see inflation remaining at elevated levels, 40% see further reductions during 2024.

In addition, while interest rate cuts have been an effective tool for cooling the inflation rate, 60% of institutions agree that higher inflation is the new normal. The majority (62%) of respondents said interest rates pose the greatest portfolio risk for 2024.

Geopolitical turmoil

Geopolitical uncertainty, particularly bad actors, topped the list of economic threats investors are worried about in the coming year. Respondents pointed to price spikes for energy and food related to Russia’s invasion of Ukraine as well as the potential for China’s geopolitical ambitions to split the global economy into two spheres of influence.

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Politics at home also could impact investments in 2024, as the potentially controversial U.S. presidential election will take center stage. A messy campaign as well as the potential for skepticism over election results could have negative impacts on the markets, the report said.  Nearly three-quarters of respondents expect the partisan divide in the United States to have a negative effect on global markets, while 54% of institutional investors say that political dysfunction in the U.S. and elsewhere has them increasingly worried about a default on public debt.