Source: Wall Street News
January is a big month in Asia, the geopolitical situation is expected to improve in February, and the Federal Reserve's “interest rate cut” in March was the highlight... December was the best month ever for US stocks.
Less than a week after the beginning of 2024, global assets were in turmoil, US bond yields and the US dollar rose, and US stocks had the worst start since 2008. This is probably just the tip of the iceberg. Future trends in US stocks may be more difficult to predict, and the key lies with the Federal Reserve.
As Bank of America Chief Investment Officer Michael Hartnett pointed out in the latest report, the Fed and US bond yields are influencing the trend of the bond market and stock market. Falling inflation and interest rates may have a positive impact on risky assets, but if the unemployment rate rises, lower interest rates may have a negative impact on risky assets.
For the 2024 capital market, the yield of the Federal Reserve and US Treasury bonds are undoubtedly the two most critical variables. However, in terms of asset prices, Hartnett believes there are three aspects that have the greatest impact: pricing, corporate profits, and new events affecting interest rate (policy) expectations.
Many major macro events will emerge this year, and Hartnett listed the top 12 events that could affect profits and interest rates in 2024:
January: Asian month, focusing on the Taiwan elections, Japan's YCC, and the issuance of US bonds.
February: The geopolitical situation improved.
March: The highlight is the March 20 FOMC meeting and whether the Federal Reserve will cut interest rates for the first time.
April: Whether the US economy can make a “soft landing” will be revealed.
May: The Google antitrust case will be settled from May 1 to 3, focusing on whether the “Big Seven” of US stocks can withstand the test.
June: The focus is on the OPEC annual meeting and EU elections.
July: Focus on whether US debt will hit the longest inversion since the Great Depression of 1929.
August: Focus on the impact of the unemployment rate in America's “swing states” on fiscal policy.
September: Focus on the asset size of money market funds.
October: The BRICS countries held a summit to focus on emerging market stock markets.
November: US election results announced, focusing on the impact on US stocks.
December: The best-performing month in the history of US stocks.
January: Asia's Big Month
January is Asia's “big month”: January 13 is voting day for the Taiwan Regional Election, and January 22, the Bank of Japan may end extremely loose monetary policies such as YCC (yield curve control) and NIRP (negative interest rate policy).
The biggest event is probably the announcement of the US Treasury bond issuance plan for the first quarter on January 29. The lower-than-expected issuance scale announced on October 30 was the trigger for a “rebound of everything” in the fourth quarter. US bond yields fell from 5% to 4%.
Furthermore, January 19 may be the day the US government shuts down. US debt increased by 10 trillion US dollars in 106 days. Currently, the debt size exceeds 34 trillion US dollars. The consensus predicts that the US debt plan of 970 billion US dollars will be announced on January 29, and fear of higher numbers = higher yields. US bonds are in a cyclical bull market during a long-term bear market.
February: The geopolitical situation is expected to improve
On February 24, the second anniversary of the Russian-Ukrainian conflict, geopolitical rivalry and political polarization may be beneficial... monetary and fiscal policies are more relaxed than the macroeconomic situation requires.
2024 is a global election year. Countries that account for 60% of the world's GDP, 80% of the stock market value, and 40% of the population will hold elections this year. They need to calm geopolitics, avoid a sharp rise in oil prices, and be optimistic about a soft landing. The drop in oil prices will be a strong catalyst for non-US economic growth in the first half of '24.
March: The Federal Reserve's “interest rate cut” became the highlight
March 5 is “Super Tuesday” in the US, but the highlight was the March 20 FOMC meeting and the Federal Reserve cut interest rates for the first time (Bank of America forecast). The market consensus predicts that interest rates will be cut by 150 basis points in 24 years. The rebound in the fourth quarter of last year was at the center of the Federal Reserve's interest rate, and the shift to interest rate cuts may have been driven by weak growth. The first rate cut may have ushered in a peak in asset prices. Note that some of the biggest bond market incidents occurred when the Federal Reserve cut interest rates.
April: Whether the US economy can have a “soft landing” will be revealed
According to Bank of America's forecast, the probability of a hard landing/soft landing/no landing is currently 20%/70%/10%, respectively. The landing situation will be revealed when the US GDP for the first quarter is announced on April 25.
Bank of America expects the S&P 500 EPS to grow by more than 5% in '24. This requires the ISM manufacturing index to rise to 52 and the labor market to remain strong. It is worth noting, however, that if ISM were <50 throughout April, it would be the longest contraction period since 2000-2002, while continuing throughout May was the longest contraction period since 1981-1983.
May: US stocks “Seven Sisters” face antitrust tests
Without considering the “Seven Sisters” of US stocks, the closing price of the S&P 500 index in 2023 should be 4,175 points, and the “Seven Sisters” of the US stock market account for 2/3 of the 2023 return.
What investors love about big tech companies is their “moat,” the ability to maintain “a monopoly to protect profit margins, market share, and pricing power.” The Google antitrust case will be settled from May 1 to 3. This is the first of three antitrust rulings, which may directly affect the monopoly position of Google and Meta and weaken the long-term position of big tech companies.
June: OPEC annual meeting and EU elections in focus
The OPEC annual ministerial meeting will be held on June 1, the European Parliament elections will be held from June 6 to 9, and the G7 summit will be held on June 13.
The Federal Reserve is expected to cut interest rates for the second time on June 12 and end the quantitative austerity policy, or cause the dollar to fall in recent weeks. The downside is expected to be fully priced in the middle of the year; the key point for bulls is that the dollar depreciated in the first half of the year, driven by the Federal Reserve's easing policy and narrowing growth differences between the US and other regions.
July: Focus on whether US debt will hit the longest inversion since the Great Depression of 1929
The Milwaukee Republican National Convention will be held on July 15 to select the Republican presidential candidate. We need to pay attention to the trend of the US Treasury yield curve before July. The 3m-10s US bond yield curve is currently -141 bps and has been inverted for 15 months; if it remains inverted until July, the inversion will last the longest since the Great Depression of October 1929 (19 months).
August: Focus on the US “swing state” unemployment rate
August, the fourth year of the presidential term, is often the best month for US stocks to perform. The Democratic National Convention held in Chicago on August 19. Currently, politics have had an impact on policies and markets, but the impact will be more obvious by August.
Keep an eye on the unemployment rate situation in some key swing states (Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania, Wisconsin), and note that the number of first-time jobless claims in Pennsylvania reached the highest level since July 2021; this is a rare period of low unemployment where the presidential approval rate is so low, which may mean more policy stimulus, but it may also trigger the beginning of volatility.
September: What is the capital size of money market funds?
Bank of America expects the size of money market fund assets (currently $6 trillion) to peak in September.
Bank of America's analysis shows that: i) the inflow of money market funds in 2023 was not abnormally high (up only 25% from the average 33% annualized increase in the previous 4 cycles); ii) the current inflow of money market funds will end in September 2024 (the size of money market fund assets usually peaked 14 months after the last time the Federal Reserve raised interest rates); and (iii) outflows from money market funds will begin in March 2025 (that is, 12 months after the first Federal Reserve cut interest rates).
October: BRICS countries hold summit
The BRICS Leaders' Summit will be held in Kazan, Russia. This is the first summit with expanded membership (Saudi Arabia, UAE, Iran, Argentina, Egypt, Ethiopia, Brazil, Russia, India, China, South Africa).
The new BRICS 11 countries account for 51% of global carbon dioxide emissions, 46% of the population, 45% of energy consumption, 45% of oil production, and 37% of global GDP at purchasing power parity. However, the market capitalization of these countries is less than 25% of the total value of the global market, and emerging market stocks are also at a 52-year low compared to the US stock market... Bank of America suggests buying emerging market stocks and selling US stocks in 2024.
November: US election results announced
On the US election day on November 5, the traditional view is that although the election may cause chaos, it will not have much impact on the market. However, in the 2016 and 2020 elections, the situation was clearly different. The stock market surged by more than 5% in November (only Reagan was elected in 1980 since World War II), and rose 9-14% over the next 3 months.
December: The best-performing month in the history of US stocks
There is no need for any major events. December is often the best performing month for US stocks, with an average increase of 1.3% since 1928. This was proven once again in 2023, when US stocks soared to near historic highs, although in real terms they were still 12% below the November 21 high.
edit/ruby