[MUSIC PLAYING] Hello. This is David Kelly. I'm chief strategist here at J.P. Morgan Asset Management, and I head the team that produces the Guide to the Markets. Welcome to the economic and market update for the first quarter of 2024. At the start of last year, many investors and economists worried that 2023 would be a challenging year for the economy markets. Instead, 2023 turned out to be a year of surprising resilience.
Growth accelerated to 5.2% during the third quarter, while inflation has continued to slide down towards the Fed's 2% target. Looking ahead, the economy should slow in 2024 but a soft landing still looks possible. However, with fading tailwinds from the consumer and business spending, slow momentum does leave the economy vulnerable to any kind of a shock.
Meanwhile, after hiking rates by a cumulative 5.25% over the past two years, the last of the Fed's rate hikes is likely behind us. At its December meeting, the Fed kept rates unchanged, and forward guidance indicated that rates are at their peak. That being said, the Fed is still firmly pushing back against the notion of any early rate cuts, raising the risk that rates will stay higher for longer.
Ultimately, this will depend on whether or not the U.S. economy falls into recession. Despite Fed tightening, equity markets saw impressive gains last year, with relatively low volatility. The same cannot be said for bond markets, however, which grappled with elevated interest rate volatility and supply imbalances.
As investors look forward into 2024, geopolitical uncertainty remains elevated. However, valuations outside of the largest stocks look attractive. Fixed income offers strong asymmetric returns and investors can look outside of public markets to alternatives to help fine tune portfolios for the desired outcomes in alpha, diversification and income.
2024 could be another year of surprises but leaning into active management and stepping out of cash should help investors take advantage of the changing investment climate. The Guide to the Markets, now in its 20th year, is constructed to try to address these kinds of questions. However, it's important to do this concisely.
There are over 60 pages in the guide but that is far too many for any conversation about the markets. So what we do here is boil it down to just 11 slides. In particular, we assess the performance of this past year for the markets and the economy, considering trends in growth, jobs and inflation in the U.S. and how these trends are shaping the outlook for monetary policy.
This is followed by comments on growth from around the world. Finally, we can see the implications of all of this for those investing across asset classes and highlight the importance of stepping out of cash and actively engaging with opportunities in alternative assets.