Monthly, we update our wholesale investors on what’s happening in the market. Running what’s probably the only late-night trading desk from New Zealand, we’re well-positioned to feel the pulse of the market’s direction.
January saw the bullish market take a breather.
Many stocks still presented strong value. It has been a good time to buy.
Other companies are seeing the value too:
- We’ve had two of our positions slated for takeover in January alone.
- Both will be acquired, leave stock exchanges, and return USD and GBP proceeds to our clients.
- This will mean effective returns of 40% to 50% over holding periods of between five months to two years on those positions.
Yes, some of the Christmas cheer also came out of the market…
We visited a friend’s office the other day. He gave me a nice cappuccino.
They have a large loft-style space. ‘We’ve just taken our Christmas tree down,’ he said.
It looked rather forlorn in several pieces. The cheer had gone. The holiday was over. Work had now begun in earnest. With a touch of hopeful nervousness for how the year will be.
This market feels the same way. For the months of November and December 2023, we notched up a combined performance of 15.51%. Ending 2023 up 19.91%. (This is across all the wholesale portfolios following our strategy.)*
January 2024 has been a time to reflect on market exuberance:
- Will interest rates come down as fast as investors expected (hoped) last year? Have they overpriced this?
- Can the United States and the developed world enjoy a soft landing from years of pandemic disruption, money printing, and inflation?
- Are US markets going to be rocked by a boisterous and divisive presidential election? Or could a Trump presidency’s tax cuts boost companies further?
- How will Europe change as it looks to swing to the right — seemingly against the previous green EU and globalised narrative?
- Are many company stock prices still sitting below their intrinsic value? Can earnings keep growing?
- What will be the key growth and risk trends in 2024-2025? In 2023, we saw developments with AI, electrification, friendshoring, and the end of rapid growth in China. Where are we heading next?
Rest assured, we will be exploring these aspects at Wealth Morning as we go forward.
One thing is for certain. Predictions have limited use. Learning and interpreting from what has been can be far more useful.
I recall, after the GFC, many analysts said that low or no growth would be the ‘new normal’.
Well, how wrong they were. The S&P 500 has increased over 345% since then.
Today, we see what many expect as the first phase of a bull market.
Interest rates are poised to soften this year. Company earnings and stock prices are set to sail on the winds of these falling rates.
Yet some are warning that interest rates won’t fall that much.
We need to get used to an environment of higher rates. And we may not see the near-zero rates of 2020 again.
President Trump announced the nomination of Jerome Powell to be Chairman
of the Board of Governors of the Federal Reserve in 2017.
(Official White House Photo by Andrea Hanks)
Source: Flickr/Public Domain
Jerome Powell has just dashed hopes for a March rate cut:
‘Based on the meeting today, I would tell you that I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting to identify March as the time to do that. But that’s to be seen…’
But he did say earlier that rate cuts would likely begin at some point this year.
Here is the current state of probabilities:
- CNBC Fed Survey finds 70% believe the first rate cut will be in June 2024. Some analysts see no urgency to cut.
- Policymakers signalled in December that the rate-hike campaign was likely at an end. In 2024, they would probably start to reverse course.
- Traders continue to see a series of rate cuts this year once the Fed gets going. Futures see the Fed potentially delivering 5x 25bp cuts by year-end. (Somewhat less than the 6x cuts earlier priced.)
- Given the Fed was burned earlier when they thought inflation would be transitory, they likely now want to see 2% very firmly on the horizon.
- This week, things may change again as we get further elucidation from the Fed and Bank of England on their course.
Now, there is one powerful trend to observe.
I see ageing demographics in developed markets. Ageing means less spending and slower economies.
If history is anything to go by, that will mean we do eventually revert back to lower interest rates supporting stock markets.
Just look at the demographic predicament China is now in, with deflationary pressures evident. This will have global impact. The tools of lowering reserve limits, lowering interest rates — even going to negative rates — QE and cutting taxes may all become necessary again.
Necessary to boost businesses, improve home affordability, and provide the impetus for younger people to have families.
Only this week, at least one senator was calling for the Fed to cut interest rates and bring relief to Americans who ‘cannot afford to pay rent’!
In this scenario, many stocks still present great value.
Unless there’s some unpredictable disaster — or inflation rears up again — this environment is converging for a market with strong tailwinds.
Managed Account performance*
For the month of January 2024, we were up 0.12% across the composite portfolio (total aggregate return across all portfolios following the strategy).
Our MSCI EAFE benchmark was up 0.67%.
Our average annualised return since inception is 14.14% p.a.
Please see our performance chart for more details.
This is your chance to make a courageous decision
Yes, there’s still time to capture opportunity today for 2024 and beyond!
If you do not have available funds in your trading account, please add for deployment over the next month.
Editor, Wealth Morning
*Past performance is not an indicator for future performance. Your actual portfolio will differ from the composite portfolio mentioned. The information contained in this document does not constitute an offer to sell or a solicitation to buy an investment, nor should it be construed as investment advice. Wealth Morning Managed Accounts are available to Eligible Investors and Wholesale Investors (not to Retail Investors) as defined in the Financial Markets Conduct Act (2013).