Global stocks will outperform bonds during 'soft-ish' landing in 2024, Barclays says

• The global economy will slow down to 2.6% growth in 2024, from 3% this year, Barclays said.
• Investors can expect mid- to high-single-digit equity returns in US and European markets.

Global stocks will beat bonds next year as macroeconomic conditions will remain relatively stable despite slowing down, Barclays said in a Thursday note.

World economic growth will cool to 2.6% in 2024, from an estimated 3% this year, analysts said, while many of the challenges that have been overwhelming markets are slowly set to diminish.

In the US, inflation will slide to 2.8% by the end of 2024, with the Federal Reserve remaining higher-for-longer until the fourth quarter. Meanwhile, the jobless rate will climb and peak at 4.3%, as consumption slows and higher rates begin to be felt in the economy.

"This is not a soft landing, but when we also consider our low peak unemployment forecasts, it is distinctly soft-ish," Barclays said, later adding, "We expect this business cycle to be one of the rare instances where the unemployment rate does rise a fair bit, but the economy avoids a serious recession."

The same can be said for Europe, where growth is expected to fall well below 1%, but a hard landing will be avoided. Despite an unimpressive 2024, the continent will circumvent earlier headwinds, such as energy rationing.

This outlook leaves room for some investing risk, with global equities set to rise higher on easing recessionary concerns.

"We think stocks will benefit from a fairly benign bottom to this business cycle and look through near-term earnings disappointments. Even as bond yields stay elevated, we expect mid- to high single-digit equity returns in both the US and Europe next year," the note said.

In US markets, Barclays recommended large-cap assets, noting that services-oriented and energy stocks appear attractive. The bank also favors value over growth equities, given high exposure to real rates and low international sales exposure.

But while US assets should continue to dominate globally, European stocks are trading at a premium discount that could prompt investors to diversify.

Meanwhile, Barclays recommended against emerging market stocks, as continued downside in China could continue.

The bank holds lower expectations for US Treasury bonds, especially as prospects of a hard landing dissolve. It also noted that the term premium — or the compensation investors should receive for the risk of owning an asset — is likely not high enough for purchasing US debt.

"US Treasury yields are likely to reverse some of the decline from the peak as the economy surprises to the upside of pessimistic growth expectations over the coming months," Barclays said.

Similarly, JPMorgan recently highlighted that bond yields could still be in the process of peaking. But unlike Barclays, the bank is less optimistic about equities, saying that the recent market rally may not be long-lasting.