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Stocks had a very good year in 2023 – here's how 2024 is shaping up

Falling inflation had a very positive effect on Aussie shares in the back end of 2023.

With just under two weeks to go until year’s end, the ASX200 share index is set to register a gain of about 7.5 to 8 per cent in 2023. When dividends are added, the total return will be approximately 12 per cent.

This is a good result for any investor and superannuant. It is a return that builds wealth at a solid rate and it acts as a spark for investment flows into good companies in a highly competitive marketplace for funds.

To put that sort of return into context, an annual 12 per cent compound return doubles the value of the investment every six years.

A man looks at an electronic board displaying stock information at the Australian Securities Exchange.
The Aussie stock market has enjoyed gains of up to 8 per cent in 2023. (Source: Getty) (Brendon Thorne via Getty Images)

While the local stock market was volatile during the year - as it is every year - a sharp rise in share prices in the final months of 2023 was triggered by a realisation that inflation was poised to fall further and hit the Reserve Bank's (RBA) target in the next few quarters. This will then likely lead to lower interest rates being delivered, which will make shares relatively more attractive from an asset-allocation viewpoint and will engineer a recovery in economic activity that will flow through to higher turnover and corporate profits. These are the lifeblood of a buoyant stock market.

Also by the Kouk:

At the start of the year, with the ASX200 trading at 6,946 points, I was very upbeat. The forecast was for the ASX to rise by around 15 per cent through 2023 – to 8,000 index points. Strong capital flows into stocks, a moderate monetary policy tightening cycle and slower economic growth underpinned that forecast.

I was clearly a little too optimistic. At the time of writing this article, the market was around 7,480 points. That said, anyone who positioned for a good year on the stock market and held that position through the year would have done well.

Being too optimistic on a rising market is still profitable and that is what happened in 2023.

The following is certainly not direct investment advice – do your own research and seek advice based on your personal financial circumstances before making any decisions.

That said, as 2023 draws to a close. The outlook for stocks in 2024 is for another year of decent gains and, indeed, that target I had at the start of 2023 - for 8,000 points for the ASX200 - may be too conservative in 2024. A fresh record high of 8,250 points is a rise of around 10 per cent from current levels which, at this juncture, is on the cards.

The reasons for a positive view for the ASX are built on the forecast delivery of interest rate cuts - both in Australia and around much of the world - a moderate lift in bottom-line economic growth, aided in part by rapid population increases and relatively strong commodity demand, which will underpin the all-important resources sector.

The prospective interest rate cuts will help keep bad bank debts at low levels and will likely spark a lift in new borrowing activity, which will be a boon for banks’ profits and their share price.

Expectations for the stock market can be undone very quickly by things like pandemics and geopolitical upheavals. It is not possible to prepare for such shock events and, if there are no such X-factor occurrences, get set for another good year for Australian stocks.

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