Recent surveys show investors are growing increasingly confident that bond yields will fall in 2024. Lower yields tend to boost stock prices, signaling potential gains for equities next year.
According to Bank of America’s latest fund manager survey, a record 80% of professional investors anticipate declining bond yields in 2024. The primary driver of this expectation is a widespread conviction that inflation will continue moderating.
Inflation was rampant in 2022, causing the Federal Reserve to aggressively hike interest rates. But prices are now rising at their slowest pace in two years, per the latest Consumer Price Index report. Investors are betting inflation will keep cooling as supply chains normalize post-pandemic.
This outlook is bullish for stocks. Rising bond yields have pressured equities in 2022 by making bonds more appealing versus risky assets. But yields appear to have peaked, with the 10-year Treasury yield falling sharply in recent weeks. Additional declines in 2024 would remove a key headwind for stocks.
Lower yields also suggest less aggressive Fed rate hikes going forward. The Fed’s rapid tightening has weighed on growth and corporate profits this year. A more dovish policy would provide relief to the economy and earnings.
With inflation potentially stabilizing at lower levels, the coast looks clear for stocks to mount a rebound. Bull markets historically last around 5 years on average. We’re only in the first year of the current bull run, leaving room for more gains.
Given attractive valuations after last year’s sell-off and a likely Fed pivot, investors are right to be optimistic about equities in 2024. The coast isn’t entirely clear yet, but expectations for lower yields signal brighter days ahead for stocks.
Stephen H. Hammond
Stephen H. Hammond, president and founder of Christian Values Investing Inc., established the first “fee-only” Biblical responsible investment advisory firms in 1993 to help Christians align investments with their values and better manage finances from a biblical perspective. He graduated from Georgia Southern University with a finance degree and worked in the Investment Banking industry before joining Merrill Lynch in 1988. Stephen is a published author and speaker, a spirit-filled Christian who traces his faith heritage to preacher ancestors. In 2005, he established the nonprofit Covenant Financial Ministries to teach biblical stewardship principles and money management. Stephen has decades of experience in money management and financial planning. and serves with Kingdom Advisors and the National Association of Christian Financial Consultants. He has appeared on radio and television, spoken at churches, and authored books including Mission Possible: An Investment Guide for Christians and The Successful Life Manager. He married Angela in 1990 and has two adult children.