The big news of the weekend in the financial markets was, of course, that MarketWatch 50 member and only female economic tailwind Taylor Swift jumped into the arms of Kansas City Chiefs tight end Travis Kelce after a concert in Argentina. The investment implications:
Ok, now that you’ve spit out your coffee, onto the real call of the day. It’s that time of year when investment banks make their forecasts for the year ahead, and Goldman Sachs and Morgan Stanley have gone to the press with their predictions, which of course have little chance of actually happening, but provide a filter , through which to discuss the pros and cons of various investment choices.
The global equities team at Goldman Sachs on Monday issued a note saying markets will still be stuck in a “thick and unchanged” range — meaning there could be quite a bit of volatility in equity markets, the thicker part. but not much of actual progress, ie.
Perhaps more notable are the signs of optimism coming from Morgan Stanley. The team raised its target for the S&P 500 SPX to 4,500 for the end of 2024 from 4,200 (though the latter number has only been extended to June 2024).
The end of rate hikes and the start of rate cuts means high-grade bonds will outperform, the dollar DXY will remain strong and emerging markets will lag, they say.
Of course, the team isn’t exactly ecstatic. “Financial conditions are tough. Interest rate cuts are not generally expected until later in 2024. Downside risks to global growth are high. The revenue recession is still underway. Bond supply continues to be a problem in the market. EM fundamentals face a headwind. Correlations between assets have not disappeared from the extremes. Finesse will be required to find openings in markets that can generate positive returns,” the team said.
They expect cuts from both the US Federal Reserve and the European Central Bank in June next year, and they also expect China to find its footing.
What will work? “2024 will again be a good year for investing income. Even if interest rates don’t fall as much as we expect, for yield-focused investors, US core bonds yielding 6%+ are the most attractive since 2009. Valuations for high-quality debt instruments look attractive, they say.
As for stocks, they (and Goldman, by the way) love Japan. “For Japanese stocks, we have long argued that the market is supported by secular factors that are rising [return on equities] for convergence with global stocks. This is playing out. The region is also more insulated from downside risks in Asia and geopolitical risks,” they say.
They also recommend a bullish approach of late-cycle defensive growth and cyclicality, citing data showing an average return of 8% when the Conference Board’s leading economic index shrinks from highs of at least 3%, outside of a recession. “This is a historically supportive backdrop for (1) traditional hedges (healthcare, staples and utilities), (2) select growth opportunities (lower volatility growth, in particular, along with stocks focused on secular themes , which may outweigh cyclical risks), and (3) cyclical late cycles (industrials and energy.)”
Among their traditional defensive picks: Costco
PRICE
,
American foods
USFD
,
Walmart
WMT
,
Pure Dr. Pepper
KDP
and Philip Morris International
PM
.
More defensive/lower volatility growth stocks that are overweight include Nike
ON
,
McDonald’s
MCD
,
Hilton
HLT
,
Marriott
MAR
and Yum Brands
YUM
.
Late-cycle cyclicals include Northrop Grumman
NOC
,
ConocoPhillips
COP
,
Marathon oil
MRO
and Delta Airlines
DAL
.
The market
US stock futures
ES00
NQ00
had landed slightly lower ahead of Tuesday’s CPI data. Bitcoin
BTCUSD
was weaker, rising 39% in the past month.
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The hum
Late on Friday, Moody’s cut the outlook for the US credit rating to negative ahead of what could be another government shutdown, although the main reason cited was rising interest rates and the lack of fiscal measures to offset them.
Boeing
B.A
stocks rose after a Bloomberg report that China may lift a trade freeze on the 737 Max when Xi Jinping visits San Francisco for the APEC summit. Separately, Emirates bought Boeing jets for $52 billion.
Novo Nordisk
NGOs
released the full results of a cardiac trial of its popular weight-loss drug for people without diabetes.
A UK cabinet reshuffle saw Rishi Sunak sack controversial home secretary Suella Braverman after former prime minister David Cameron returned as foreign secretary.
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