Principal Financial Group highlighted several key themes for investors to monitor during the first quarter. Take a closer look at the outlook below:

Global Growth and Economic Expansion

Economic expansion has reached a turning point, transitioning from a rapid pace to a more subdued progression as global monetary policy gradually tightens its grip. Principal Financial Group shared, “U.S. recession risk has diminished, although consumer headwinds are on the rise. China and Europe are likely to experience another year of modest growth.”

Monetary Policy and Rate Cuts

“The Federal Reserve and other central banks are preparing for potential rate cuts,” Principal Financial Group noted. “Most central bankers have adopted a more dovish stance, and rate reductions are likely in 2024. However, they may occur slightly later than market expectations and are anticipated to be gradual—unless there are unexpected downward surprises in economic growth.”

Equity Market Volatility and Predicted Rally

The first half of the year is anticipated to bring about volatility in the equities market, although a rally may be in store for the second half. The financial institution emphasized that an upturn in the stock market would be supported by anticipated central bank easing. Additionally, the firm stated that the recent decline in bond yields has propelled the markets upwards, but this trend will only be sustained if corporate earnings meet expectations.

Exploring Alternative Investments

Principal Financial Group underlined the potential for market participants to diversify from the traditional equity-bond portfolio breakdown by considering alternative investments. “Commodities face an uncertain immediate future as investors weigh geopolitical risks against increased U.S. oil supply,” the group commented.

Shifting focus to Thursday, the Nasdaq Composite (COMP.IND), S&P 500 (SP500), and the Dow (DJI) are all showing a downward trend, while Treasury yields (US2Y) (US10Y) exhibit minimal movement.