This is how asset classes will perform in 2024, according to MS. (JPY:USD)

Morgan Stanley’s 2024 Global Strategy Outlook report has ranked key asset classes by how the brokerage believes they will perform next year.

As economists feel confident that the end of hikes is here and that next year the Federal Reserve will start cutting rates, high grade bonds should outperform, the U.S. dollar should stay strong, and U.S. stocks should see positive returns, although “risks are front-loaded,” the report published on Sunday said.

“With markets pricing in a smooth macro transition, there’s little room for error.”

MS sees equities (SPY), (DJI), (COMP.IND), during the first half of next year, as challenged due to the strong dollar, restrictive policies, and a U.S. earnings recession still in sight. In Addition, China’s “tepid recovery” could also affect equities, but the second half of the year could see more opportunities for better returns.

According to MS, the markets performing better in order are Japan, Europe, U.S., and emerging markets.

When it comes to government bonds, MS expects most top markets to fall in 2024 as rate-cut cycles begin, except for Japan, which should see flatter yields.

“We are most constructive on UKTs, overweight on USTs and EGBs, and UW on JGBs,” MS analysts said.

MS also sees the dollar continue to gain strength, but the Japanese Yen (JPY:USD) should do well against the dollar, “driven by policy convergence.”

Analysts also remain cautious on the euro (EUR:USD) and the emerging markets’ currencies, “and most negative on the British pound (GBP:USD).

In addition, investment grade should be “well supported by benign macro, strong corporate fundamentals, and termed-out maturities,” analysts said.

MS sees the corporate credit assets’ performances in the following order: U.S. investment grade, E.U. investment grade, U.S. leverage loans, U.S. high yield, and Asia investment grade.

Finally, strong demand for oil (CL1:COM) is expected to trend-revert, while non-OPEC supply should meet the additional demand, “leading oil to trade side-ways in 2024,” MS analysts said.

MS thinks gold (XAUUSD:CUR) is better than U.S. 10-year real yields (US10Y) due to the continuation of geopolitical risks. Copper (HG1:COM) is also liked because of stronger China demand.