The market has had a positive run over the last couple of months. This is all good news based on the direction of the economy, interest rates, and inflation. This optimism is well-founded, though it’s wise to anticipate a period of consolidation in the future. The market should begin to broaden from the Mag 7. It’s crucial to remain alert for new opportunities that may arise during any market pullbacks.
The consumer has demonstrated considerable resilience in 2023, maintaining robust spending levels in the face of inflationary pressures and escalating interest rates. This trend, if it continues, is likely to be the catalyst in economic activities in 2024. The US job market has been above average, consumers are managing higher interest rates (which was normal before the last 20 years), and a massive rebuild in the world infrastructure. The world is going digital, and the market is moving to it.
Reflecting the optimism among investors, the S&P 500 has witnessed an impressive uptrend, over the last 7 weeks.
There are worries about earnings growth deceleration. There’s a concern among investors predicting a deceleration in earnings growth in 2024. This trend could lead to downward pressure on stock prices. However, the economy is rebuilding in the new normal of higher rates. Companies are investing in new technology and corporate activity is growing is growing. Although earnings might be coming down the market is already adapting to the higher rates and new investments are growing. This is apparent in the housing sector.
There are persisting global tensions, exemplified by issues in Ukraine, Middle East and other global issues. These issues have the potential to induce market volatility and impact investor sentiment. We will probably look to these as opportunities as the global economy is improving.
There could continue to be monetary policy tightening. In the desire to curb inflation, central banks might persist with interest rate hikes through 2024. Such measures, while necessary, could inadvertently slow down economic growth and temper investment activities. However, the FED is easing. The European markets are also holding rates steady. This doesn’t seem to be an issue with inflation easing worldwide.
There are recession risks, and the focus will be on ongoing economic data. The risk of a global recession is a possibility, but it is seemingly less likely. This could have widespread implications for global markets and economies.
The soft-landing is becoming a higher probability each economic data point. There are still several issues that can derail the economy, but current events are becoming more certain, and the stock market looks to be on the verge of a new bull market. We will continue to practice risk management but are actively looking for growth opportunities. We proceed with caution making sure we have discipline and patience. We look to preserve our wealth as we grow it.
The market is on a sugar high. This is expected but we should be looking for a rebalancing. We are above the historical market mean return but there have been many years that we remained above the mean. Our approach is risk management but participate with disciplined investments. This could be the birth of the next bull run; we will cautiously join in without taking inappropriate risks.
Key Points:
- Strong consumer spending: Despite inflation and rising rates, US consumers have remained resilient and maintained robust spending, supporting economic activity.
- Positive market sentiment: The S&P 500’s 20% YTD gain reflects investor optimism and a potential bull market catalyst.
- Infrastructure rebuilding: World infrastructure is undergoing a massive rebuild, presenting potential investment opportunities.
- Market adaptation to higher rates: Companies are investing in new technology and adjusting to the “new norm” of higher rates, indicating economic resilience.