2 Min WatchArticle24 Jan 2024

Could 2024 Be the Year of a Goldilocks Economy?

At a Glance

During the 1990s and again in the 2010s, equity and bond investors celebrated a goldilocks economy, with low inflation and steady growth

While equities did well in 2023, their rally was narrow, driven by only a handful of large tech and consumer discretionary stocks, while most other stocks including small caps were largely left behind

After two years of surging inflation, are we going back to goldilocks?

Investors loved the low inflation environments of the 1990s and 2010s, which delivered huge returns for equities, but they haven’t enjoyed the post-pandemic stock gains as much. Stocks fell sharply in 2022 and although they rebounded last year, they haven’t passed their old highs.

The goldilocks economy of the 1990s and the 2010s had two key characteristics: low inflation and steady growth. The good news for equity investors is that inflation is falling worldwide.. In the past six months U.S. core inflation has run at an annualized pace of below 3%, and outside of rental costs it’s below 2%.

So, the inflation front is improving. However, the economic growth front may be looking shaky. 5.25% of Fed rate hikes, along with similar rate hikes from most of the world’s other central banks, could take its toll on economic growth in 2024. If the economy falls into a recession, that could be bad news for stocks. The S&P 500 lost 50% of its value during the 2001 recession and 60% of its value during the global financial crisis even as inflation rates remained low.

Additionally, stocks were cheap in the early 1990s and the early 2010s when the S&P 500’s market cap was worth about 50% of annual U.S. GDP. Now the S&P 500 is trading at close to 160% of U.S. GDP. As such, even if it returned to a goldilocks economy, it’s not obvious that stocks would perform exceptionally well.

_{OpenMarkets is an online magazine and blog focused on global markets and economic trends. It combines feature articles, news briefs and videos with contributions from leaders in business, finance and economics in an interactive forum designed to foster conversation around the issues and ideas shaping our industry.}

_{All examples are hypothetical interpretations of situations and are used for explanation purposes only. The views expressed in OpenMarkets articles reflect solely those of their respective authors and not necessarily those of CME Group or its affiliated institutions. OpenMarkets and the information herein should not be considered investment advice or the results of actual market experience. Neither futures trading nor swaps trading are suitable for all investors, and each involves the risk of loss. Swaps trading should only be undertaken by investors who are Eligible Contract Participants (ECPs) within the meaning of Section 1a(18) of the Commodity Exchange Act. Futures and swaps each are leveraged investments and, because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for either a futures or swaps position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles and only a portion of those funds should be devoted to any one trade because traders cannot expect to profit on every trade. BrokerTec Americas LLC (“BAL”) is a registered broker-dealer with the U.S. Securities and Exchange Commission, is a member of the Financial Industry Regulatory Authority, Inc. (www.FINRA.org), and is a member of the Securities Investor Protection Corporation (www.SIPC.org). BAL does not provide services to private or retail customers.. In the United Kingdom, BrokerTec Europe Limited is authorised and regulated by the Financial Conduct Authority. CME Amsterdam B.V. is regulated in the Netherlands by the Dutch Authority for the Financial Markets (AFM) (www.AFM.nl). CME Investment Firm B.V. is also incorporated in the Netherlands and regulated by the Dutch Authority for the Financial Markets (AFM), as well as the Central Bank of the Netherlands (DNB).}