Investors’ hopes were running high into the start of 2024, but the S&P 500 index started the year by stripping 2.2 per cent off its December 2023 peak while the all-important 10-year US Treasury yield has jumped back up from a recent low of 3.78 per cent to around 4 per cent. Investors have been cautious in the opening sessions of 2024, as they awaited further clarity on when interest rate cuts will begin, and how quickly they will happen.
Hopes for a swift pace of easing had triggered a blistering rally in the final weeks of 2023, which took the S&P 500 to within 1% of its all-time high, so any undermining of that hypothesis has been a cue for profit-taking.
So, no surprise then we could be in for a rocky stretch in the markets.
Friday’s session saw markets gyrate throughout the day, as investors absorbed the latest macroeconomic data which offered contrasting views on when interest rate cuts may begin.
Looking further ahead, investors will parse the message from the Fed at the end of its Jan. 30-31 policy meeting. Markets expect the central bank to leave rates unchanged this month, and bets on a cut at the March meeting have been pared back.
The 10-year German Bond is a important benchmark, and was last at 2.1740, up 3.28% perhaps sending a message globally about the direction of interest rates.
The Australian share market rounded out its worst start to the year in more than a decade on Friday, as the broad rally staged in the final months of 2023 lost steam.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Digital Finance Analytics (DFA) Blog
The Volatility Dragon Has Not Been Slayed: Brace For More Firey Swings!
Investors’ hopes were running high into the start of 2024, but the S&P 500 index started the year by stripping 2.2 per cent off its December 2023 peak while the all-important 10-year US Treasury yield has jumped back up from a recent low of 3.78 per cent to around 4 per cent. Investors have been cautious in the opening sessions of 2024, as they awaited further clarity on when interest rate cuts will begin, and how quickly they will happen.
Hopes for a swift pace of easing had triggered a blistering rally in the final weeks of 2023, which took the S&P 500 to within 1% of its all-time high, so any undermining of that hypothesis has been a cue for profit-taking.
So, no surprise then we could be in for a rocky stretch in the markets.
Friday’s session saw markets gyrate throughout the day, as investors absorbed the latest macroeconomic data which offered contrasting views on when interest rate cuts may begin.
Looking further ahead, investors will parse the message from the Fed at the end of its Jan. 30-31 policy meeting. Markets expect the central bank to leave rates unchanged this month, and bets on a cut at the March meeting have been pared back.
The 10-year German Bond is a important benchmark, and was last at 2.1740, up 3.28% perhaps sending a message globally about the direction of interest rates.
The Australian share market rounded out its worst start to the year in more than a decade on Friday, as the broad rally staged in the final months of 2023 lost steam.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
After the December Federal Reserve Press Conference where Jerome Powell appeared to pivot to rate cuts ahead, with a more dovish tune than just a few days before, markets dialed up their expectations of up to six rate cuts though 2024, and stock markets veered towards all time highs, while bond yields fell. Powell said at the press conference that it was premature to declare victory, though he did acknowledge the question of when to begin “dialing back” policy restraint was discussed.
Futures markets have been anticipating the Fed will cut rates six times this year, beginning with a likely quarter-point reduction in March. Traders have priced in a 67% chance of a 25 basis point rate cut in March though several Fed officials have pushed back against expectations of an imminent policy move in recent weeks.
Which begs the question, are markets fooling themselves?
Well, we now have the minutes of the Dec. 12-13 Federal Open Market Committee meeting which were released yesterday. “Participants viewed the policy rate as likely at or near its peak for this tightening cycle,” the minutes said.
Officials “reaffirmed that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably.”
This helps to explain why markets are lower, and bond yields higher. So yes, markets are ahead of themselves.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Digital Finance Analytics (DFA) Blog
Are Markets Head-Faking Rate Cuts Early This Year?
After the December Federal Reserve Press Conference where Jerome Powell appeared to pivot to rate cuts ahead, with a more dovish tune than just a few days before, markets dialed up their expectations of up to six rate cuts though 2024, and stock markets veered towards all time highs, while bond yields fell. Powell said at the press conference that it was premature to declare victory, though he did acknowledge the question of when to begin “dialing back” policy restraint was discussed.
Futures markets have been anticipating the Fed will cut rates six times this year, beginning with a likely quarter-point reduction in March. Traders have priced in a 67% chance of a 25 basis point rate cut in March though several Fed officials have pushed back against expectations of an imminent policy move in recent weeks.
Which begs the question, are markets fooling themselves?
Well, we now have the minutes of the Dec. 12-13 Federal Open Market Committee meeting which were released yesterday. “Participants viewed the policy rate as likely at or near its peak for this tightening cycle,” the minutes said.
Officials “reaffirmed that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably.”
This helps to explain why markets are lower, and bond yields higher. So yes, markets are ahead of themselves.
http://www.martinnorth.com/
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/
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/
In the last trading day before the Christmas break, U.S. stocks gyrated to a mixed close on Friday having digested cooler-than-expected US inflation data which firmed bets for Federal Reserve interest rate cuts in the new year. That said, all three indexes turned less decisive in light trading as the afternoon progressed, after an initial rally on data showing inflation is easing closer to the U.S. central bank’s target.
The Dow Jones Industrial Average fell 0.05%, to 37,385.97, the S&P 500 gained 0.17%, at 4,754.63 and the Nasdaq Composite added 0.19%, at 14,992.97. Small caps handily outperformed the broader market, with the Russell 2000 ending up 0.8%.
Of the 11 major sectors in the S&P 500, consumer discretionary was the sole loser, while consumer staples enjoyed the largest percentage gain.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Digital Finance Analytics (DFA) Blog
Markets Gyrate Into Christmas After A Two Year Round Trip!
In the last trading day before the Christmas break, U.S. stocks gyrated to a mixed close on Friday having digested cooler-than-expected US inflation data which firmed bets for Federal Reserve interest rate cuts in the new year. That said, all three indexes turned less decisive in light trading as the afternoon progressed, after an initial rally on data showing inflation is easing closer to the U.S. central bank’s target.
The Dow Jones Industrial Average fell 0.05%, to 37,385.97, the S&P 500 gained 0.17%, at 4,754.63 and the Nasdaq Composite added 0.19%, at 14,992.97. Small caps handily outperformed the broader market, with the Russell 2000 ending up 0.8%.
Of the 11 major sectors in the S&P 500, consumer discretionary was the sole loser, while consumer staples enjoyed the largest percentage gain.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
This past week was a doozy in the markets as the Fed started to flip the switch on monetary policy, which took the markets by surprise. Yields plunged. Stock and bond prices soared. And this time, it’s more than the Magnificent Seven stocks leading the charge.
The Russell 2000 ETF has more than doubled the return of both the S&P 500 and the Nasdaq 100 over the last month. And the S&P Regional Banking ETF, which has taken the brunt of the bears’ ire this year and is still down YTD, has surged ~36% since the beginning of November.
The markets feverish speculation about future interest rate cuts has further loosened global financial conditions, storing up risks for euphoric stock and bond markets if central banks view the easy funding environment as a reason to hold borrowing costs high.
Both Goldman Sachs and Jefferies said long/short hedge funds, which take positions betting stocks will rise and fall, got hit hard after Fed Chair Jerome Powell’s comments on Wednesday.
The investment bank’s global markets team said systematic long/short funds, based on a computer-driven strategy, were down 2.8% on Thursday, the worst single day since at least January 2016.
And in fact on Friday US equities gave back some of their weekly gains while the dollar advanced after New York Fed President John Williams told CNBC it was premature” to be thinking about a March rate cut”.
Williams’ Atlanta counterpart, Raphael Bostic told Reuters he was only pencilling in two quarter-percentage-point rate cuts in the latter half of 2024. Swaps traders were eying as many as six rate cuts for next year.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
This past week was a doozy in the markets as the Fed started to flip the switch on monetary policy, which took the markets by surprise. Yields plunged. Stock and bond prices soared. And this time, it’s more than the Magnificent Seven stocks leading the charge.
The Russell 2000 ETF has more than doubled the return of both the S&P 500 and the Nasdaq 100 over the last month. And the S&P Regional Banking ETF, which has taken the brunt of the bears’ ire this year and is still down YTD, has surged ~36% since the beginning of November.
The markets feverish speculation about future interest rate cuts has further loosened global financial conditions, storing up risks for euphoric stock and bond markets if central banks view the easy funding environment as a reason to hold borrowing costs high.
Both Goldman Sachs and Jefferies said long/short hedge funds, which take positions betting stocks will rise and fall, got hit hard after Fed Chair Jerome Powell’s comments on Wednesday.
The investment bank’s global markets team said systematic long/short funds, based on a computer-driven strategy, were down 2.8% on Thursday, the worst single day since at least January 2016.
And in fact on Friday US equities gave back some of their weekly gains while the dollar advanced after New York Fed President John Williams told CNBC it was premature” to be thinking about a March rate cut”.
Williams’ Atlanta counterpart, Raphael Bostic told Reuters he was only pencilling in two quarter-percentage-point rate cuts in the latter half of 2024. Swaps traders were eying as many as six rate cuts for next year.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
