What the Goldilocks Economy means for February reporting season

A Goldilocks Economy in 2024 is not too hot, not too cold, but one of balance: resilient global growth, decreasing inflation and an outlook for several rate cuts; a shift from the hard landing predicted nine months ago.

Markets recently have celebrated the growing likelihood of easing conditions ahead, though this may be an overreaction. Indicators such as credit growth and consumer spending are slowing, telling a very different story for Australia.

Yet companies are entering this reporting season cautiously optimistic. We have moved beyond the worst of the supply chain issues and labour market shortages, and side-stepped a widely anticipated recession. While it might be difficult for significant margin expansion with slow top line growth and ongoing costs, we expect company outlooks can afford to be more positive than they were 12 months ago.

Within the WAM Leaders (ASX: WLE) investment portfolio, we think the real estate investment trusts or REIT sector has more upside than the banks. While both sectors are cyclical and offer solid dividends, the valuations now demanded by the banks defy the realities of the sluggish credit growth, competitive margin environment and regulatory scrutiny they are facing. The REIT sector however remains on reasonable valuations, with a strong asset backing and opportunity for growth.

Looking ahead, geopolitics will take center stage this year, influencing economies, markets, and global trade routes. There are a number of dynamics to watch in 2024, such as the situations in Ukraine, Israel, China-Taiwan relations, and 65% of the world’s democracies voting in general elections in 2024. In an Australian context, global uncertainty tends to be most relevant for commodity prices.

Only those investors that are nimble can benefit from volatility. We are looking forward to seizing the opportunities and mitigating the risks that may occur in the 12 months ahead.