Bank of America's Top 10 Predictions for 2024: Japanese stocks lead developed markets, "geopolitical risks" put pressure on tech giants

In 2023, countries in Europe and America are plagued by high inflation, and the financial markets are in turmoil. What "unexpected" events will happen in 2024?

Bank of America released its annual list of "Potential Market Surprises in 2024" on Tuesday, making ten predictions for 2024. In the report, Bank of America warned that if the expected ideal economic scenario fails to materialize, the fastest monetary easing policy in history could lead to market imbalances. Bank of America advises investors to pay attention to the difference between the relatively dovish stance of the bond market and the stance of the Federal Reserve.

The report also mentioned that the Japanese stock market will lead the developed markets, technology giants will be affected by "geopolitical risks," and the IPO market will recover, among other things.

Here are Bank of America's top ten predictions:

1. The process of achieving low inflation is full of uncertainty and vulnerability: In 2024, various global events may disrupt the market's consensus on a smooth decline in inflation, potentially leading to higher inflation. Bank of America warns that the turmoil in the Red Sea situation poses a threat to the market's pricing of "soft landing" inflation.

2. Despite a benchmark interest rate of 5%, corporate operations remain stable: Bank of America believes that although companies face higher default rates, their debt structures are relatively robust, and they have ample cash reserves and access to private credit, indicating a low possibility of a wave of bankruptcies.

3. The Japanese stock market leads the developed markets: Bank of America strategist Masashi Akutsu predicts that driven by corporate reforms and more attractive valuations compared to US stocks, the Japanese stock market will rise by 13% in 2024, leading the developed markets.

4. "Geopolitical risks" put pressure on technology giants: Major technology companies such as Apple and Nvidia are increasingly affected by geopolitical risks. Bank of America advises investors to shift towards more balanced stock indices.

5. High bond taxes prompt investors to shift focus from buying government bonds to stocks: Bank of America notes that investors receive different tax treatments for interest income from holding government bonds and returns from long-term stock holdings. The tax rate on interest income from holding government bonds is 37%, while the tax rate on returns from long-term stock holdings upon sale is 20%. Bank of America believes that investors may initially be attracted by the 5% yield on US government bonds, but due to preferential tax treatment, they may shift their focus to stocks.

6. Demand for a premium on US government bonds: Bank of America believes that investors have lost confidence in the sustainability of the US government's budget, leading them to seek higher returns on government bonds to compensate for potential risks. IPO Market Sees Recovery: According to SPDR S&P Bank ETF KBE and exchange tracking, the IPO market may see a recovery in 2024, following a sluggish period in 2023, thanks to favorable macroeconomic conditions and interest rate cuts.

More Rational Energy Investments: Due to the underperformance of renewable energy stocks, investors may reevaluate the value of the undervalued oil, gas, and nuclear energy industries, leading to a shift towards investing in traditional energy stocks.

Biotech and Pharmaceutical Industries Expected to Grow: In 2023, the entire pharmaceutical sector was dominated by weight loss drug manufacturers, but in 2024, advancements in Alzheimer's disease research may take the pharmaceutical industry to new heights.

Rediscovering Enthusiasm for Free Markets: As regulatory burdens remain heavy, the upcoming US election may ignite expectations for a more business-friendly environment, thereby boosting investor confidence in the stock market.