Swingbridge's 2024 Predictions

Every year, countless businesses and investors/investment funds write about their predictions for the coming year. And, every year, most of those predictions don’t happen. But, these predictions are often drivers of broad investment theses. And, well, it’s fun to guess.

So, despite the expectations of failure in our role as prognosticators, here are 10 predictions of what’s to come in 2024 from the Swingbridge team:

1. M&A activity will pick up dramatically, highlighted by a large ($20B+) acquisition of a popular consumer technology brand by one of Apple, Google, or Amazon. This will be noteworthy because it will be a business used by many, and further drive the antitrust conversations as the acquirer expands into yet another key line of everyday consumer businesses with the acquisition. (note: we’re not making a prediction on the specific company that will be acquired given the potential conflict coming from our holdings in the Swingbridge Public Equity LP)
   
   
2. While the Fed will start cutting the Fed Funds rate in 2024, they will do less cuts than most economists are projecting (popular opinion is 5 or 6 cuts in 2024). The inflation concerns have decreased considerably following the prior increasing rates cycle, and now the Fed has to reverse course to avoid going too far in the wrong direction. With the stock market near all-time highs, a strong labor force, and continued Global supply chain pressures, the Fed will attempt to navigate a soft landing by being conservative in the number of cuts they make.
   
   
3. AI will continue its climb in popularity but will be slow to see mainstream adoption by year end. With more and more businesses looking to deploy AI-related concepts in their product offerings, this is a topic that dominates the headlines. And to be sure, we believe the concept is here to stay and will significantly impact the future (not really going out on a limb there, perhaps!). But we think it is going to take more time for the application of AI in everyday life to be accepted by most people, and that’s going to come sometime in 2025 or beyond.
   
   
4. The Venture Capital industry at large will quickly forget the lessons of the past 18 months and get back to deploying capital at increasing valuations with a growth at (nearly) all costs mindset. Of course, everyone now remembers that ultimately, unit economics and a path to profitability truly matters (duh!). And the mid-stage (Series B/C/D) growth type companies will still be put under microscopes for their valuations. But these VCs have capital to put to work and 18 months of investing patience feels like a life-time - time to start deploying and not being so picky once again (/sarcasm)!
   
   
5. A few (call it 3-4) prominent, previously well-financed, venture funded start-ups will unexpectedly shut down in 2024. Back to point #4 regarding the challenges mid-stage growth companies will face, there are many businesses out there that raised a ton of capital at high valuations during the peak and have been able to coast through the tough past 18 months on that cash despite offsides unit economics, without the public knowing. At some point in 2024, the music is going to stop, the financing won’t be there, and they will realize there is no path forward for their business.
   
   
6. The Private Credit market is going to start to bubble over, with an influx of borrowers struggling to service their higher interest payments. The Private Equity world is largely built on debt leverage. But this is a good reminder that leverage doesn’t change the direction of business results, it simply exaggerates them - for better or worse. With so many businesses turning to higher-rate private lenders when banks were more conservative over the past 2 years, the burden of those interest payments will start to add up, resulting in a sharp increase in defaults in 2024.
   
   
7. The IPO market is going to “reopen” with strong performance for investors. One of the (perhaps many) benefits of the tighter capital financing period of the past 2 years is cream rising to the top - the best businesses have leveraged this period over their struggling competitors to get even stronger. This results in these businesses being better primed to come to the public equity markets, which matches the “quality demand” from public equity investors. After showing some patience, 2024 will be a year for these businesses to take action with their IPOs, and investors will be rewarded.
   
   
8. The stock market, as measured by the S&P 500, will have yet another double-digit percentage price appreciation year. On average going back 100 years, the S&P 500 rises just over 10% per year on a total return basis, so calling for a double-digit return isn’t that ground-breaking. However, following 2023’s +26.3% rise, the S&P 500 has increased by 18% or more in 4 of the last 5 years, with 2022 the only down year. The combo of Fed easing + Presidential election + a generally strong economy drives the prediction that more is coming (ok, fine, we’ll say another 18%+ in 2024).
   
   
9. Bitcoin will be in roughly the same position - both price and public adoption - at the end of 2024 as it was at the start of 2024. To be fair, Bitcoin is back en vogue (some might say it never left!) following the 2023 price increase of ~150% to $42K, giving crypto bulls some ammo in their fight for more Global recognition. And the early 2024 launch of the BTC ETF is expected to attract more everyday investors. Still, it feels like it’s the passionate BTC bulls who keep propping it up, while it remains to be seen how much any average investor cares. Hard to see this changing in 2024.
   
   
10. Investors will favor real asset businesses over software / technology businesses as a delayed impact from higher interest rates. As dollars continue to be spent on infrastructure & supply chain projects, we expect the trend towards real assets to pick up in 2024. The last 10+ years have seen higher margin, scalable software companies get higher valuations compared to asset-heavy businesses. As rates normalize, and investors consider their software investment losses and 2023 rates-driven pressure on the Commercial RE sector, the market will appreciate the value of real assets again.

And with that, let’s see all the ways we’re wrong in 2024!