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Market Insights

Q4 Market Outlook

Tom Wald, CFA®, Chief Investment Officer, Transamerica Asset Management, Inc.

As Q4 2023 begins, we provide the following updates to our Market Outlook:


Despite what looks to have been strong Q3 gross domestic product growth, the economy is likely to slow during Q4 and into CY 2024. We still believe a mild-to-moderate recession is probable based on the lagging impacts of the Federal Reserve’s previous rate hikes, downward trends of leading economic indicators, depleting consumer savings, rising credit card debt, and the resumption of student loan payment requirements. We see core rates of inflation likely continuing to mitigate toward the 3% range, moving into CY 2024.   


While the Federal Reserve is now likely at or near the end of its tightening cycle, the Fed’s message of a higher-for-longer interest rate environment seems to have finally been absorbed by markets and investors. While we continue to feel odds favor the conclusion of rate hikes at the current fed funds target range of 5.25–5.50%, another quarter-point rate increase could be on the table by year-end. All considered, we see a more stable rate environment as the year concludes, though we do not see the Fed cutting rates until H2 2024.


Markets are now coming to terms with an upcoming “dis-inversion” of the yield curve by year-end 2024, which has put meaningful upward pressure on longer-term bond yields. Given potentially weaker economic data in the months ahead, we view a realistic year-end 2023 target on the 10-year Treasury rate to be approximately 4.25%, though further steepening of the yield curve is likely in CY 2024.


We view investment-grade and high-yield corporate bonds as opportunistic based on recently elevated yields. Given the widely anticipated nature of a pending downturn and overall balance sheet management of corporations since the pandemic, we believe credit risk is more benign than prior to most other previous recessions.


We are maintaining our year-end 2023 price target on the S&P 500® of 4,600 and believe there is further upside to potentially record highs during CY 2024. Tail wind catalysts for the year ahead include declining rates of inflation, the conclusion of the Fed’s current tightening cycle, and the ability of corporations to effectively navigate growing earnings through a mild-to-modest downturn. We believe such conditions favor growth stocks over value.    


Global investors are likely to benefit from international developed and emerging market equities as growth in advanced and developing regions could be improving in CY 2024 and valuations appear favorable. Europe is likely to prove resilient, growth remains strong in India, and market conditions appear to be improving in Japan.


Investments are subject to market risk, including the loss of principal. Asset classes or investment strategies described may not be suitable for all investors.

Past performance does not guarantee future results. Indexes are unmanaged and an investor cannot invest directly in an index. 

Equities are subject to market risk meaning that stock prices in general may decline over short or extended periods of time.

Fixed income investing is subject to credit rate risk, interest rate risk, and inflation risk. Credit risk is the risk that the issuer of a bond won’t meet their payments. Inflation risk is the risk that inflation could outpace a bond’s interest income. Interest rate risk is the risk that fluctuations in interest rates will affect the price of a bond. Investing in floating rate loans may be subject to greater volatility and increased risks.

Growth stocks typically are particularly sensitive to market movements and may involve larger price swings because their market prices tend to reflect future expectations. Growth stocks as a group may be out of favor and underperform the overall equity market for a long period of time, for example, while the market favors “value” stocks. Value investing carries the risk that the market will not recognize a security’s intrinsic value for a long time or that an undervalued stock is actually appropriately priced. 

Investments in global/international markets involve risks not associated with U.S. markets, such as currency fluctuations, adverse social and political developments, and the relatively small size and lesser liquidity of some markets. These risks may be greater in emerging markets.

The information included in this document should not be construed as investment advice or a recommendation for the purchase or sale of any security. This material contains general information only on investment matters; it should not be considered as a comprehensive statement on any matter and should not be relied upon as such. The information does not take into account any investor’s investment objectives, particular needs, or financial situation. The value of any investment may fluctuate. This information has been developed by Transamerica Asset Management, Inc. and may incorporate third-party data, text, images, and other content to be deemed reliable.

Comments and general market-related projections are based on information available at the time of writing and believed to be accurate; are for informational purposes only, are not intended as individual or specific advice, may not represent the opinions of the entire firm, and may not be relied upon for future investing. Investors are advised to consult with their investment professional about their specific financial needs and goals before making any investment decisions.

The 10-Year U.S. Treasury bond is a U.S. Treasury debt obligation that has a maturity of 10 years.

S&P 500® Index: An unmanaged index of 500 common stocks primarily traded on the New York Stock Exchange, weighted by market capitalization.

LEI consists of 10 components that indicate the short-term future course of various sectors of the economy, combined into a composite indicator of general economic performance.

The ICE BofA U.S. High Yield Index tracks the performance of U.S. dollar denominated below investment- grade rated corporate debt publicly issued in the U.S. domestic market.

Transamerica Asset Management, Inc. (TAM) is an SEC-registered investment adviser. The funds advised and sponsored by TAM include Transamerica Funds and Transamerica Series Trust. Transamerica Funds and Transamerica Series Trust are distributed by Transamerica Capital, Inc. (TCI), member FINRA. TAM is an indirect wholly owned subsidiary of Aegon N.V., an international life insurance, pension, and asset management company.