Traders price in three quarter-point eases in 2024. That is a sharp drop from more than six as was expected at the turn of the year. Never mind because that was enough to push Wall Street to fresh record highs while gold also scored a new record, jumping above USD2,200 an ounce last week. We have an overweight exposure to risk assets plus a long-term allocation to gold for long-term positions.
Unsurprisingly, optimism among individual investors about the short-term outlook for stocks significantly increased based on what I heard in the meetings. Meanwhile, both pessimism and neutral sentiment decreased. Does anyone has a new bear narrative?
This doesn’t imply that a selloff will not happen. In fact, given various interpretations of “correction,” one is quite probable and perhaps imminent. A decline of approximately -5% is almost certain within the next month or so, and a -10% correction is quite possible within the next six months, based on historical patterns of market pullbacks.
The FOMC’s policy rate remained unchanged at 5.25%-5.50% but the Fed warned that bumpy inflation may mean rates could restrictive for longer and dialed back on the scope of cuts in 2025 and beyond. Other central banks were also in the spotlight, with the Bank of Japan ending negative interest rates after nearly a decade, while the Swiss National Bank surprised investors with the first rate cut for developed economies.
Given Japan’s decision to increase rates while the US contemplates rate cuts, one might anticipate a strengthening of the Yen. However, although it experienced a slight rally following the Fed’s meeting, the Yen concluded the week lower. Indeed, any long-term impact of the policy change on the USD-JPY rate is likely to be gradual.
So what comes next? What are the “experts” talking these days? Wait a second please! Analysts led by Goldman’s chief US equity strategist, David Kostin, presented a scenario in which mega-cap tech stocks could continue to grow and propel the S&P500 an additional +15% higher to the 6,000 level by the end of the year.
The current rally in growth stocks is different from what happened when markets crashed in 2021 or during the tech bubble, the analysts wrote. This time around, investors are paying closer attention to how much profit companies are actually bringing in, they said.
While enthusiasm for artificial intelligence is at a fever pitch, Goldman’s analysts said growth expectations and valuations for the largest technology, media and telecommunication stocks are “still far from bubble territory.”
The investment bank also presented a more tempered scenario in which the S&P 500 climbs +11% to reach 5,800 by year-end. In this case, markets would just have to catch up to their pre-pandemic valuation levels.