Weekly | Macro Factors 2024
Your weekly summary with the most important news for your investments, in this edition.
Your weekly summary with the most important news for your investments, in this edition:
2023 financial performance
Economic outlook and upcoming events
Key factors for 2024
Regardless of the complex beginning of last year 2023, with the bankruptcies of several financial institutions as the Federal Reserve (FED) pushed the monetary policy rate towards 5.5% to contain the inflationary process that had been taking place, the US stock indexes ended the year climbing for nine consecutive weeks with the sovereign rate closing the year at the same level at which it began. Thus:
The Dow returned +13.7%.
The S&P 500 +24.2%.
The Nasdaq, led mainly by just seven technology stocks, climbed +43.4%.
The 10-year sovereign rate closed the year at 3.88%.
The price of oil fell -11.4% to around US$71 per barrel measured by WTI. In Europe the average return was +15.8%, Asia +7.4% while in Latin America (excluding Argentina) markets returned +19.5%.
Evidently, the perception that inflation was controlled entering the second half of the year, together with a pro-cyclical discourse by the FED, allowed part of the liquidity that had been parked in pursuit of short-term interest rates to leave in search of more attractive returns once a drop in the price of oil and agricultural commodities and, therefore, in general inflation, was expected.
This week will see the release of year-end macroeconomic data including ISM and PMI activity indicators, ADP private employment data estimated at 110 thousand (Thursday), to close the week next Friday with the December 2023 employment data where it is estimated that the economy would have generated 165 thousand new jobs, the unemployment rate climbs marginally to 3.8% (from 3.7%) and wage inflation remains at 4%. Mid-week (Wednesday) the FED will seek to provide further guidance on monetary policy during the first half of the year with the release of its minutes from its last monetary policy meeting with everyone awaiting its next meeting to be held at the end of January. On the corporate front Tesla will be releasing last quarter's auto sales data and pharmacy chain Walgreens will be releasing its quarterly results giving us a glimpse of the country's domestic demand and possible inventory buildup.
However, in this edition, we will stop to analyze the five main macro factors that will govern the stock market in this new year, topics that we addressed tangentially in our previous edition.
The first factor that will play a role will be the verbal and written messages that will continue to be delivered by the FED along with the central banks of the Euro Zone, England and Japan regarding inflation. For now, in the US, the consensus, as measured by the CME, is that the FED will begin the tapering cycle on March 20th , assigning it to lower the monetary instance rate (currently at 5.5%) by -25 basis points to bring it towards 4% by December 2024. However, as mentioned above, without wage inflation falling below 4% it is unlikely that there will be room to proceed more aggressively, particularly if oil and agricultural commodity prices do not ease more gradually.
Still, there are those who argue that the wage adjustment could materialize without recession as a result of the cross-cutting change in productivity introduced by Artificial Intelligence (AI) models, the second factor. It has been almost a year since this technology was introduced to the general economy and there is still a long way to go. For those who have been able to experiment with AI or are already incorporating it into their daily lives or business processes, they will realize that the change in productivity will have a discretionary leap in the coming years. The reflection of what happened with the prices of those stocks that are leading the introduction of such technology (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) was not a mere coincidence but reflects the drastic change in processes that will occur in the next two years.
The third macro factor is the latent concern about the macroeconomic slowdown that has been occurring in developed economies as a result of high interest rates. For some, that slowdown, together with the technological change mentioned above, could lead to a deeper labor recession than everyone expects. Therefore, the scenario of a probable "soft landing" is very low and a recession could already be registered in the second half of the year. This is because wage disinflation to bring inflation back to 2%, the target set by the central banks of developed countries, will most likely have to be accompanied by a jump in unemployment rates (the product of a recession).
The fourth factor will be determined by the evolution of oil prices along with the prices of other commodities, which will unfortunately be marked by geopolitical conflicts at the global level. The Russian-Ukrainian conflict continues without diplomatic resolution, while in the Middle East tensions are on the rise, not only because of the war that Israel is waging with Hamas, but also because in the last hours the United States and Iran are engaged in a skirmish in the Red Sea. Meanwhile, over the weekend, Chinese President Xi Jinping, in his annual speech, argued that the reunification of China with Taiwan is "historically inevitable" given that the latter country has presidential elections on January 13.
In the midst of this convulsed global geopolitical environment, on November 5 there will be presidential elections in the United States where, for now, the candidates are Joe Biden and Donald Trump. However, between personal and family legal trials, the two candidates will be presenting two diametrically opposed political programs, generating once again a marked division in the direction of the country. Let us hope that sanity prevails, because if it does not, it will have an impact on stock market volatility.
Finally, we close this first edition of the year by wishing you a 2024 full of achievements, health and family love, hoping that you will continue to join us with our weekly analysis.
This Week
Monday (January 01)
Quarterly Reports
Lanvin Group Holdings Limited
MariaDB plc
Chenghe Acquisition I Co.
Magnum Opus Acquisition Limited
Iris Acquisition Corp
Tuesday (January 02)
Quarterly Reports
BHP Group Limited
SatixFy Communications Ltd.
Mesoblast Limited
RF Acquisition Corp.
Global Star Acquisition, Inc.
Economic Reports
S&P Global Manufacturing Report
Wednesday (January 03)
Quarterly Reports
Unifirst Corporation
Cal-Maine Foods, Inc.
Simulations Plus, Inc.
SunCar Technology Group Inc.
Iris Energy Limited
Economic Reports
ISM Manufacturing PMI Report
Federal Open Market Committee Minutes
Thursday (January 04)
Quarterly Reports
Walgreens Boots Alliance, Inc.
Lamb Weston Holdings, Inc.
Aegon Ltd.
RPM International Inc.
ConAgra Brands, Inc.
Friday (January 05)
Quarterly Reports
Constellation Brands Inc.
Greenbrier Companies, Inc. (The)
AngioDynamics, Inc.
Hurco Companies, Inc.
Economic Reports
Nonfarm Payrolls Report
Now you have more information about your investments. See you next week with more news.
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