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Commonwealth Sees A Goldilocks Economy Ahead



If the 2024 economic and investment landscape aligns with Commonwealth’s outlook, investors could have a good year, according to Brad McMillan, the Waltham, Mass.-based advisory’s chief investment officer.


Commenting on Commonwealth’s new 2024 outlook report, McMillan said in an interview that the company is expecting that by the end of 2024 that inflation will hover around 2.5% to 3%, GDP growth will be at 3.75%, the Fed funds rate at 4.75% to 5%, the 10-year U.S. Treasury yield at 4% to 5%, and the S&P 500 to land between 4,700 and 4,800.


“We are reasonably optimistic about the economy. As long as job growth remains fairly robust, in keeping with pre-pandemic levels, we’ll see the economy expand,” he said. “If we get stronger than expected economic growth and Fed cuts, that would be the upside scenario.”


U.S. Economy

Looking first at the U.S. economy, Commonwealth’s Outlook 2024 report predicts that low unemployment and higher salaries will enable the American consumer to maintain its spending levels, and this will contribute 1.5% to the national GDP.


“We expect a Goldilocks economy—one that offers full employment, economic stability, and moderating inflation,” the report said. “This foundation will offer an ideal state for the financial markets and keep the bears at bay.”


The biggest risk to this outlook would be a breakdown in consumer confidence, perhaps due to a rise in unemployment or a surprising surge in inflation. But McMillan said he thinks this is unlikely.


The report stated business investment will add 1.2% to the economy, net exports 0.25% and government spending 0.80%.


“I think 3.75% growth is great. It reflects consumer demand, job growth, and confidence. We’re going to see a combination of consumer spending growth along with continued business investment. And substantial investment in manufacturing,” McMillan said. “And manufacturing investment adds a host of different benefits. Besides the products, there are the jobs.”


Inflation and Fed Rates

Both inflation and interest rates have been major drivers of market performance for 2023, and Commonwealth expects that to continue in 2024.


When the Fed signaled at its last meeting that three rate cuts could happen in the second half of 2024, the equities market rallied on the news. But McMillan said all the market gyrations around “when” and “how much” those cuts will be are misplaced.


“When and how much are the wrong questions,” he said. “The question is why? Why would the Fed cut rates?”


If job growth remains strong and inflation stays above the Fed’s target, the Fed would not cut rates, he said.


“They’re not going to want to cut until the job market weakens,” he said. “The jobs market is the canary in the coal mine.”

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