In its 2024 investment outlook, Morgan Stanley shared why it’s bullish on fixed income. A major reason is that it expects for inflation to continue moderating. Within fixed income, the bank likes high-quality bonds and government debt from developed markets. In terms of equities, it sees less upside given that markets have already priced in a soft landing.

According to Serena Tang, Chief Global Cross-Asset Strategist at Morgan Stanley Research, “Central banks will have to get the balance correct between tightening just enough and easing quickly enough. For investors, 2024 should be all about threading the needle and looking for small openings in markets that can generate positive returns.”  

The bank recommends a more cautious approach in the first half of 2024 as there are numerous headwinds including restrictive monetary policy, a conservative earnings outlook, and slower economic growth. However, it sees rate cuts starting in June of 2024 which should provide a boost to the economic outlook in the second half of 2024 due to inflation falling to the Fed’s target.

It also expects lower levels of global growth in the US, Europe, and UK while also seeing weak Chinese growth as a risk, although it believes that the country will avoid a deflationary spiral that could have negative ripple effects for the wider region. 

Finsum: Morgan Stanley shared its 2024 outlook. Overall, it’s bullish on fixed income due to expectations that inflation will continue to fall while growth will disappoint in 2024.