In memory of famous investor Byron Wien, who was known for his list of 10 surprises each year, we provide our own list of potential economic, financial, and political surprises for 2024.

Byron started the tradition in 1986 when he was chief investment strategist at Morgan Stanley and continued publishing it at Blackstone until his death earlier this year.

A concept is considered a “surprise” if the average investor assigns a less than 1 in 3 chance of its occurrence, but we assign it a greater than 50% probability.

The list

1. Inflation does not return to 2%

In order to maintain credibility, the Federal Reserve continues to emphasize its 2% inflation target, even if it proves difficult to achieve.

Structural pressures remain:

• Low population growth and labor shortages support higher wages
• De-globalization reverses prior deflationary trends
• Tight commodity supply pressures prices upward

2. The Federal Reserve does not cut interest rates in 2024

Market expectations anticipate rate cuts, but the Fed prioritizes preventing a resurgence of inflation similar to the 1970s.

Policy changes would only occur in the event of a significantly weaker-than-expected recession.

3. The U.S. enters a recession in 2024

Monetary policy operates with long and variable lags.

This cycle may be further delayed by prior pandemic-era stimulus.

Warning signs include:

• Slowing job growth
• Tightening bank lending standards
• Rising defaults on credit cards (10-year high)
• Auto loan defaults at a 29-year high

4. Oil prices do not fall as much as expected in a recession

Energy prices remain resilient due to structural underinvestment.

Factors include:

• Reduced capital spending due to ESG pressures
• Energy sector capex significantly below historical averages
• Supply constraints that support price rebounds

5. Interest rates fall in a recession but rise again afterward

Even if recessionary conditions force rates lower temporarily, structural forces push them higher over time.

These include:

• Large fiscal deficits
• Treasury supply pressure
• Debt-to-GDP levels at approximately 121.6%

6. Gold continues to outperform government bonds

Gold benefits from limited supply growth compared to expanding sovereign debt issuance.

Additional tailwinds include:

• Declining foreign demand for Treasuries (notably from China and Japan)
• Increased concerns over fiscal sustainability

7. Commodities increasingly trade in non-dollar currencies

The rising value of the U.S. dollar increases the cost of commodities globally.

This encourages:

• More bilateral trade agreements in local currencies
• Reduced reliance on the U.S. dollar for commodity pricing

8. The U.S. presidential election is not Trump versus Biden

Uncertainty around candidate viability, age, and legal challenges creates the possibility of an alternative outcome or third-party disruption.

9. Chinese economic growth reaccelerates

China pivots toward more aggressive policy support following weaker-than-expected post-pandemic recovery trends and structural pressures in the tech sector.

10. Political instability leads to food insecurity in developing nations

Conflict and instability reduce agricultural output and distribution capacity, increasing food scarcity risks in vulnerable regions.

Closing thought

In the spirit of surprises, we are reminded of an old joke by investor David Einhorn:

“The Russians launched ICBMs at America this morning, causing the stock market to plunge, but it rebounded sharply in the afternoon on a rumor that the Fed might cut the discount rate.”

Investors have been conditioned to ignore geopolitical risk. We believe complacency may be misplaced in the current environment.

Additional note

In October 2020, we also published a list of “inevitables” — a variation on the surprise concept.

These included themes such as:

• Rising pressure to address income inequality
• Expansion of healthcare access
• Infrastructure investment needs
• Long-term fiscal and currency pressures
• Inflationary forces tied to monetary policy
• Gradual shifts in global reserve currency dynamics
• Continued geopolitical competition between the U.S. and China
• Structural growth potential in emerging markets

Happy holidays