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This is an edited version of a live discussion with Damien Klassen Head of Investments at Nucleus Wealth and Walk The World Funds. We reflected on the market switch from October, and what this means for 2024. Are we out of the woods yet? We also looked at some of the important mega-themes which will shape investing ahead.
Go to the Walk The World Universe at https://walktheworld.com.au/
This is our annual review of the financial markets, and weekly update.
As we close out 2023, the analysts are talking about the great market rally in the year (perhaps conveniently forgetting the falls of 2022.) The S&P 500 slipped in the final session of 2023 to end the year up 24 per cent, but the two-year trip is back to where it started. The Dow Jones Industrial Average and the Nasdaq Composite both dipped on Friday but were 13.7% and 43.4% higher for the year, respectively, while MSCI’s world share index posted a 20% gain, its most in four years.
True, this year might go down as one of the most unusual ever in financial markets – mainly because everything seems to have come good despite a lot of turbulence and many predictions turning out to be wrong. And this against the backcloth of more regional conflicts, pressure on the consumer, and rising Government debt.
U.S. Treasuries finished the year broadly where they started after major swings for the benchmark in 2023. In the bond markets, just a few months ago investors were expecting the Fed & Co to raise rates and leave them there while recessions rolled in. Now bond markets are looking to central banks to embark on a rate-cutting spree with inflation apparently beaten.
Equity markets have gone up so quickly that they’re highly vulnerable to a pullback if the US economy slips into even a mild recession, according to Royal Bank of Canada’s fund management arm.
The greatest risk to the stock market in 2024 (bonds & metals) is the scaling down of market expectations for rate cuts as a result of renewed gains in inflation. Any credible and consistent signs of renewed inflation (not one-off bounces or base effects) would be punishing for markets.
But even if you think the probability of such inflation rebound is minimal, there is always the typical volatility in a US presidential election year.
According to seasonality studies stretching to 1900, April and May tend to be challenging months during US election years, but October fares worst as far as consistency of selloffs.
A third risk is that of persistently swelling budget deficits and the ever-expanding amounts of new debt issues to refund existing deficits. This could easily ignite another “bond market event” similar to September 2019, March 2020, or September 2022 in the UK.
Regional conflicts might well proliferate, causing more market turmoil. And finally, next year won’t be quiet on the political front. There are more than 50 major elections scheduled next year, including in the United States, Taiwan, India, Mexico, Russia and probably Britain. That means countries that contribute 80% of world market cap and 60% of global GDP will be voting. Taiwan kicks it off with elections on January 13, followed just a few days later by the New Hampshire primary for the 2024 U.S. Presidential race.
And remember from just before that stock panic in late February 2020 to mid-April 2022, the Fed ballooned its balance sheet an absurd 115.6% in just 25.5 months for crazy-extreme monetary inflation! Other central banks did the same. That monetary base more than doubling in a couple years is the dominant reason inflation has raged in recent years. The FOMC finally realized how dangerous its extreme monetary excesses were in mid-2022 as reported inflation soared. So the Fed has shrunk its balance sheet 13.8% since then. Yet crazily over these past four years, that monetary base has still skyrocketed 85.4% thanks to the previous decade’s growth! Inflation therefore is still in the system, “This is an era of boom and bust,” BofA said. “We are not out of the woods.”
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Our latest weekly markets update.
Overall, the trading week was marked by rising expectations that the Federal Reserve will shift to cutting rates sooner and faster next year, bolstering bets among bulls that equities are poised to reset record highs in 2024.
MSCI’s index of global shares added 0.12% and headed for a monthly gain of 8.7% after investors grew increasingly confident that U.S. interest rates have peaked, with the market narrative shifting to the timing of cuts.
Bank of America strategists, have laid out an optimistic forecast for the S&P 500, predicting the index will reach a new high of 5,000 by the end of 2024. This bullish outlook follows a notable monthly surge in the index, which saw its strongest gain since July of the previous year.
The bank’s equity team has identified a transition in market dynamics from broad macroeconomic concerns to a focus on individual company performance, dubbing the current climate a “stock picker’s paradise.” This shift is underscored by a significant increase in “idiosyncratic alpha,” which suggests that stock-specific dynamics are becoming more important for generating robust returns.
But, Investors are understandably having great difficulty determining where the economy is actually headed given it has not responded as it normally would to the extraordinary tightening of monetary policy.
Some of the major banks in the world expect global economic growth to ease further in 2024, squeezed by elevated interest rates, higher energy prices and a slowdown in the world’s two largest economies.
The global economy is forecast to grow 2.9% this year, a Reuters poll showed, with next year’s growth seen slowing to 2.6%. Most economists expect the global economy to avoid a recession, but have flagged possibilities of “mild recessions” in Europe and the UK.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
This is an edited version of our live discussion with Damien Klassen, Head Of Investments At Nucleus Wealth And Walk The World Funds. Given the recent reversals in bond yields, and the US Dollar, what does this say about the markets as we move into the close of the year?
We discussed the RBA rate call, bond markets, oil prices and some interesting sectoral moves.
Original live stream here: https://youtube.com/live/b0eg9wogerQ
Go to the Walk The World Universe at https://walktheworld.com.au/
This is an edited edition of our latest live discussion with Tony Locantro from Alto Capital. Tony is an Investment Manager at Alto Capital in Perth Australia. He has been an active adviser specialising in ASX small cap companies in the mining, biotech and emerging industrial sectors. He was formerly in the NSW Police Force up until November 1998.
Tony has the knack of tell things as they are, warts and all.
Go to the Walk The World Universe at https://walktheworld.com.au/
As I have warned, October can be a fickle month on the markets, and is proving to be so again. Growing volatility in U.S. stocks is driving a search for defensive assets, though investors may have fewer places to hide this time around.
On Friday, global stock markets, including those in the US and Europe, experienced declines due to rising US treasury yields which reached a 16-year high and the potential escalation of the Israel-Hamas conflict. The pan-European STOXX 600 index lost 1.36% and MSCI’s gauge of stocks across the globe shed 1.10%. Emerging market stocks lost 0.53%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.6% lower, while Japan’s Nikkei lost 0.54%. So, losses everywhere.
On Friday, US President Biden said he plans to ask Congress for another $US74 billion ($117.2 billion) to fund the wars in Ukraine and the Middle East.
Fed Speak is not helping either, while other Fed officials have hinted that the tightening cycle could be at an end, Federal Reserve Chairman Jerome Powell’s comments on Thursday underscored possible further interest rate hikes, driven by the robust US economy, strong retails sales and tight labor market.
In a Bloomberg TV interview, Mohamed El-Erian took Federal Reserve policymakers to task, saying the US economy is seeing a period of “greater uncertainty” because of a lack of vision from Fed officials.
“You cannot drive a car without some understanding of what the road ahead looks like. You can’t just look at the rear-view mirror and try to adjust to every curve you just had,” El-Erian, the chief economic adviser at Allianz, said. “That is not how you drive policy and it’s certainly not how you drive policy when the impact of policy happens with a lag,” he said. “This is the first Fed I know that has not gotten it.”
In a note, a Bank of America’s team led by Michael Gapen said the Fed could done lifting rates. “Fed commentary has all but confirmed that the Fed will stay on hold in November. We shift the last rate hike in our forecast out to December. We think the strong September data keep another hike in play. But it is a close call. There are meaningful risks that the Fed will either delay the last hike into 2024 or not hike again.”
“Investor sentiment is quite negative, and we believe it’s important to zoom out and focus on the long term – even the intermediate term – and a lot of this will fall by the wayside,” said Ross Mayfield, investment strategy analyst at Baird.
“There’s not enough attention being paid to company earnings, which have been coming in strong, and guidance has been solid,” Mayfield added. “Investors would be wise to pay attention to that as much as the macro events, the geopolitical tensions.”
On Thursday the yield on 10-year U.S. Treasury notes, the bedrock of the global financial system, was briefly bid above the 5% barrier for the first time since July 2007, touching 5.001%. While the benchmark yield eased back from that level, it posted its largest weekly surge since April 2022. The 30-year bond last rose in price to yield 5.078%, from 5.102% late on Thursday. With the 2 year in similar territory, such a flat yield curve is a sign of uncertainty, with some questioning whether the bond market has become unanchored, or whether the big US bond issuance has moved markets, or whether it simply reflects a risk premium. The MOVE index, which measures expected volatility in U.S. Treasuries, stands near a four-month high.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
This is an edited version of a live discussion with Damien Klassen, Head of Investments at Walk The World Funds and Nucleus Wealth. Given the recent movements in bond yields, and the strong US$, markets are in the doldrums, and we will explore the current dynamics in play.
Original version here: https://youtube.com/live/VbBSqRZf3xo
Caveat Emptor! Note: this is NOT financial or property advice!!
This is an edit of my live discussion with Damien Klassen, Head of Investing at Walk The World Funds And Nucleus Wealth. September is often a bad month in the markets. How have events in China been impacting the current dynamics, will interest rates and bond rates go higher still, and has AI still further to go in terms of market growth, or distortions? And how does all this impact investment strategy?
Go to the Walk The World Universe at https://walktheworld.com.au/
This is an edited version of a discussion with Head of Investments at Walk The World Funds and Nucleus Wealth, Damien Klassen. Has FOMO taken over as inflation eases down, or is this a head fake?
Go to the Walk The World Universe at https://walktheworld.com.au/
U.S. shares struck new highs for the year on Friday and helped lift world stocks to a 13-month peak, as rising bets that the Federal Reserve will skip a rate hike next week overshadowed worries about U.S. markets being drained of cash.
Surging enthusiasm for technology giants building consumer products based on artificial intelligence catapulted the US benchmark S&P 500 into a technical bull market on Thursday. On Friday, the blue-chip bellwether index was up more than 20 per cent from its lows and is at its highest level since August, with the tech-heavy Nasdaq index chasing seven straight weeks of gains to soar 27.4 per cent year to date.
“As of today, the S&P 500 is back in a bull market,” said Arthur Hogan, chief market strategist at Briley Wealth, noting that the index finished Thursday with a 20% gain off its recent lows. “The one thing that could tip over the apple cart is an over-aggressive Fed.”
“It’s maybe the most hated bull market in the history of bull markets,” said Tim Holland, chief investment officer of investment platform Orion OCIO.
“Sentiment was terribly depressed going into year-end and still remains on the bearish side.”
And just remember how narrowly based this surge is though as hot money seeks a home in an uncertain world.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/