The year 2024 began in continuity from the last months of 2023 amid confirmations in monetary policy stance and further complications in geopolitical tensions.
The Federal Reserve kept rates unchanged and adopted a slightly more restrictive tone, ruling out a cut in March but at the same time eliminating the possibility of future hikes. The market’s forecast for 2024 remains leaning toward just under 5 cuts (about -140 basis points), in contrast to the 3 expected by the Fed. In the Eurozone, the probability of a first cut in April reached nearly 100 percent, with the market again forecasting nearly 5 cuts (-144 basis points) by the end of the year.
The crisis in the Red Sea, which originated in late 2023, further materialized in the new year. The Israeli-Palestinian conflict has had major geopolitical consequences, with Yemeni militia attacks on Red Sea ship crossings affecting global trade, greatly increasing the cost of transporting goods by ship.
The rise in equity markets in the last quarter of 2023 continued into January while bond markets remained fairly firm despite expectations for the first rate cuts being postponed from March to June. Geographic and sectoral divergence continued, with a positive month for Japan, the United States, and Europe and still negative for or Chinese markets: Hong Kong and Chinese indexes fell back toward 2011 levels.
On Wall Street, the SP500 index posted a new all-time high closing at +1.60% touching the 5,000-point mark while Nasdaq rallied +1% thanks mainly to the performance of the top seven technology stocks. European markets followed the rise of U.S. indexes with Euro Stoxx 50 index at +2.80%. Of note, some indexes touched new highs, from the German DAX (+0.90%) to the French CAC (+1.50%). Also doing well was the Swiss SMI market, which after a slightly subdued 2023 posted +1.70% on a monthly basis. In contrast, Chinese markets bucked the trend with Hang Seng down 9.15% and CSI 300 index -6.30%.
What to expect now from financial markets for the rest of the year? The global economy may be slowing down, but remains resilient enough to avoid a “hard landing.” Inflation is declining around the world, albeit with some hindrance, a fact that will encourage most major central banks to end monetary tightening policy and start cutting interest rates over the next few months. From our point of view, rates will fall, but not as sharply as the markets expect. Major stock indexes, especially those in the United States, are reaching long-term targets. At present, the risks outweigh the prospects for further rises, so a very conservative portfolio allocation is advisable.