The Aristotle List: 10 improbable but possible outcomes for 2024

It’s time to forget central scenarios and think about improbable but possible outcomes. Aristotle said “probable impossibilities are to be preferred to improbable possibilities”, meaning that we find it easier to believe in interesting impossibilities (B52s on the moon, say) than in unlikely possibilities.

In this year’s Aristotle List, Paul Jackson aims to seek those unlikely possibilities -- out-of-consensus ideas for 2024 that he believes have at least a 30% chance of occurring (whether or not they fit with our central scenario). The concept was unashamedly borrowed from erstwhile colleague Byron Wien, who sadly passed away during 2023. 

Markets finished 2023 in bullish mood, so the list of surprises errs to the negative. Despite the optimism, Jackson believes there’s a chance the US suffers a recession, that the S&P 500 finishes the year lower than it started and that global government bonds outperform global equities (see chart).

On a more positive note, he believes Chinese and Colombian stocks could have a good year and that USDJPY could go below 125 as the Bank of Japan (BOJ) starts to normalise.

Politics and geopolitics could bring volatility. For example, South African general elections may bring a coalition government but, in the US, Jackson thinks the Democrats will do better than currently suggested by opinion polls.

1. The US experiences a short recession

Hopes of avoiding a recession (thanks to strong quarter three 2023 performance of US equity and high yield markets) could be premature. The main drivers behind this performance are unlikely to continue at the same level. In Paul’s view and with delayed effects from Federal Reserve (Fed) tightening, we might see two consecutive negative GDP quarters by the end of 2024 or an National Bureau of Economic Research (NBER) defined recession.

2. The S&P500 ends the year lower than it started

Despite the S&P500 gaining 24% over 2023 (taking it back to where it was at the end of 2021), current data shows the market to be expensive. Long terms returns have typically been poor from these kinds of valuations. Current optimism may go unrewarded, especially if there’s a recession.

3. USDJPY falls below 125

The USDJPY peaked in November at 152, a 33-year high. It has since fallen to around 141, and this rebound for the yen has been sparked by expectations that the BOJ will start to raise interest rates. With the Fed and other major central banks expected to start easing interest rates, Jackson expects the yen to strengthen. This would mean the USDJPY could easily fall below 125 in 2024.

4. Democrats win at least two of three major races

In the US election, scheduled for 5 November 2024, there will be races. The one for the White House of course, the House of Representatives and 34 (of 100) Senate seats. Early polls put the Republicans in the driving seat but Jackson suspects the Democrats may fare better than expected.

5. ANC loses sole control of South Africa

South Africa’s African National Congress (ANC) party has been in power since Nelson Mandela was voted president in 1994. Its share of the vote has steadily declined and fell below 50% in local elections for the first time in 2021. If this remains the case following the general election later this year, South Africa could up with a coalition, and this could bring volatility with it.

6. Global government bonds outperform equities

Since the Global Finance Crisis (GFC), global government bonds have underperformed equities. Now that bond yields are on the rise, it’s Jackson’s view that this long period of underperformance could be coming to an end. Historically, bonds have tended to outperform when yield curves steepen, which is what could happen this year as central banks cut policy rates.

7. Geopolitics push Brent/Gold above $100/$2350

Geopolitical conflicts and OPEC+ supply restrictions haven’t had as much of an impact on oil prices as expected and this is perhaps down to a slowing global economy. But an escalation in any of the conflicts, plus the US election could destabilise the global geopolitical environment this year, and this could send the price of Brent crude oil above $100 a barrel and push the Gold price above $2350.

8. Colombian stocks to outperform major indices

A dividend yield that exceeds price/earnings (PE) ratio is one of the criteria Jackson looks for when searching for rarer stock market opportunities. This year’s choice is Colombia. A decline in its index put valuation metrics at a level that either suggests a big opportunity, or that something is about to go very wrong. But the usual macroeconomic metrics (inflation and government/international balances) don’t signal impending disaster and its currency strengthened in 2023.

9. Chinese stocks to outperform the US

Despite the relative underperformance of Chinese stocks in 2023, Jackson believes they could outperform major indices this year, as valuations look promising. Not only that, but China’s economic performance in the second half of last year was better than it has been given credit for; growth was higher than that seen in the US, where the upcoming election could cause market uncertainty.

10. France wins Euro 2024

Finally, in the world of sport, Jackson believes France will ‘deliver a Bastille Day victory’ and win the UEFA Men’s Euro 2024 football (soccer) tournament. And he believes they’ll do it by knocking out England (the bookmakers' favourite) in the semi-finals and overcoming last tournament’s semi-finalists Spain at the final hurdle.