A New Era?

In the last few days, we have had a glimpse of the next market moves. Still, at the moment, there is insufficient evidence to say with any confidence that we have entered a new period and brought an end to the central bank-induced volatility.

There have been significant moves in government bonds and equities, especially small and mid-caps, which moved dramatically after a slightly better-than-forecast inflation print in the US. Within hours, Cathie Wood of Ark Investments pronounced that the Fed is wrong and rates need to be much lower. Needless to say, she continues to advocate her own interests and has been wrong now for the best part of three years.

For balance, other notable figures such as JP Morgan’s Jamie Dimon pointed out that the Fed may still need to do more. This is also plausible, although it should be remembered that Dimon warned in 2018 that we ought to be prepared to ‘deal with rates at 5% or higher’. Rates dropped from 2.95% to 0.5% over the next two years - Mr Dimon was eventually right, only five years too early.

The takeaway from the various calls made over time is that nothing is certain - no matter how big your research team is. We continue to make the case for diversifying across assets and within sectors.

Outlook

As we head to 2024, we should remind ourselves of how markets look compared to the start of 2022, and would summarise the situation like this:

The three key components of a client valuation are the starting price of equities, the starting price of bonds and the starting (relative) price of the base currency. If we remove the largest US tech stocks, then much of the rest of the investable equity universe is not particularly expensive, and some parts, like the UK small-cap, are positively cheap. Bonds in the round are more attractive than they have been for many years. Sterling is trading within a reasonable range against its peers and is no longer the unanchored currency it temporarily became, first post the Brexit vote and then again after the disastrous mini-budget in September 2022. It is not common to describe cash as expensive, but if we look at it on a relative level to the other available assets, then a case can be made to say just that.

As ever, the siren calls to invest in what worked most recently will continue to be heard.

Disclaimer: This article is for general information purposes only and does not constitute investment advice. The commentary is intended to provide you with a general overview of the economic and investment landscape. It is not an offer to purchase or sell any particular asset and it does not contain all of the information which an investor may require in order to make an investment decision. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.