The Investing Year Ahead

[Mike Lister]

Just like many others, I'm trying to decide what my investment strategy should be for the year and was trying to consider the pluses and minuses of what will happen to the US S&P. I invest globally but US Equities Markets represent over 50% of the Investable World and contagion from those markets will spread.

 

The question I ask is, what are the key pluses and minuses that will cause the US S&P to climb or fall, during 2024, below is a brain dump to get started:

 

Pro’s

 

Falling interest rates mean consumers will switch out of Services and into Goods, where the S&P is heavy, even if GDP is not.

 

Valuations remain high but improved operating efficiencies could mean that profits remain high.

 

A weaker USD should help promote exports and increase demand, AS LONG AS importing economies are able to buy.

 

Note: the election outcome is potentially negative or positive, based on its outcome so is SPECIFICALLY EXCLUDED.

 

Con’s

 

The risk of a credit bubble weighs heavily, Blackrock exited US markets completely as a result

 

The (Bond Market) Yield Curve is inverted. The 10 year and 3 month spread is a key recession indicator, it represents the relationship between long-term bonds and what’s often considered the risk-free interest rate. In late October, the 10 year-3 month spread turned negative for the first time since February 2020. It is now almost twice as negative as the 10-2 year spread.

get.ycharts.com/resources/blog/inverted-yield-curve-what-it-means-and-how-to-navigate-it/#:~:text=An%20inverted%20yield%20curve%20is,more%20than%20shorter%2Dterm%20ones.

Markets are over valued, using historically averages, by between 32% and 50%

www.estimite.com/post/is-the-us-stock-market-overvalued/

 

Companies that must refinance face higher financing costs

 

Excitement over AI may be creating a bubble

 

Economists are split between a mild recession and mild growth in 2024.

 

The war against inflation hasn’t been won yet and the need to reduce rates to stimulate economies is potentially  at odds with winning that war.

www.imf.org/external/datamapper/PCPIPCH@WEO/ECU

 

Government debt is the highest it’s ever been, USD 34 trillion, and climbing faster than it ever has. Any action to reduce the debt such as government closure, reduced services might impact spending and markets.

 

www.pgpf.org/national-debt-

clock#:~:text=The%20%2433%20trillion%20gross%20federal,that%20it%20owes%20to%20itself.

Climate risk is increasing which will result in higher insurance company payouts, loss of productive, business disruption and higher costs and losses.

 

Global war risks have increased in the ME and Ukraine which have to potential to increase the US debt load.

 

Market gains are being driven by only seven giant companies rather than the broader market. In the year ending mid 2022, S&P gains were over 15% but if FANG stocks were removed, the gain falls to only 6%. The picture in the last few months is likely to be even more extreme hence indices are distorted.
 

 

[UKresonant]

Not sure about the S&P, but with the Elections in both the USA and UK, I've moved more towards long standing Global Investment Trusts and Funds over the last two quarters. They probably do have a substantial US element, but have tried to go for more of a kinda NATO countries and far east/pacific friends Geographical breakdown in their holdings list. I still have a disproportionate bias towards the UK & Japan though (still liked to have at least some index linked bonds). Will look but not touch again probably, until well into 2025.

[Mike Lister]

1 minute ago, UKresonant said:

Not sure about the S&P, but with the Elections in both the USA and UK, I've moved more towards long standing Global Investment Trusts and Funds over the last two quarters. They probably do have a substantial US element, but have tried to go for more of a kinda NATO countries and far east/pacific friends Geographical breakdown in their holdings list. I still have a disproportionate bias towards the UK & Japan though (still liked to have at least some index linked bonds). Will look but not touch again probably, until well into 2025.

With the US markets covering over 50% of the global investable world it's not always easy to not invest in the US, especially if you prefer global funds, like I do. Also, it doesn't make sense to me not to invest some amount in US markets hence coming out completely may not be the right things to do.....unsure, which is mainly why I posted the list above, in order to get the views of others. It might be that I need to rethink my approach and use regional specific funds rather than global funds, again, dunno.

[The Cyclist]

50 minutes ago, Mike Lister said:

The question I ask is, what are the key pluses and minuses that will cause the US S&P to climb or fall, during 2024, below is a brain dump to get started:

 

Each to their own, but I dont think a 1 year time span ( 2024 ) is long enough time span to consider pros and cons of investment.

 

IMHO, world geopolitics are too unstable at this time to weigh up any pros or cons.

 

Defence Companies might be worth a punt 

[Mike Lister]

2 minutes ago, The Cyclist said:

 

Each to their own, but I dont think a 1 year time span ( 2024 ) is long enough time span to consider pros and cons of investment.

 

IMHO, world geopolitics are too unstable at this time to weigh up any pros or cons.

 

Defence Companies might be worth a punt 

That's not the question I'm asking! I'm asking what are the pro's and con's that will effect the performance of the S&P this year, which covers only a variable portion of my investment portfolio.

[The Cyclist]

7 minutes ago, Mike Lister said:

That's not the question I'm asking! I'm asking what are the pro's and con's that will effect the performance of the S&P this year, which covers only a variable portion of my investment portfolio.

 

I am suggesting that world geo-politics will trump any of the usual pros and cons of investing.  Not just the S&P, but every single Index.

 

The world is at a crossroads

 

* Ukraine

 

* The ME

 

* Xi latest announcement on Taiwan

 

* The race for rare minerals

 

* Water scarcity

 

And the big one that you mentioned in your initial post

 

* Debt, world debt at somewhere North of 300 Trillion.

 

Currently the World is a powderkeg awaiting a spark.

 

Which is why I suggested that normal pros and cons of investing should perhaps be relegated for the time being and investment in Defence Companies might be a good opportunity.

 

Equally, if you do not think the above applies, ignore it and do your own thing.

[Mike Lister]

21 minutes ago, The Cyclist said:

 

I am suggesting that world geo-politics will trump any of the usual pros and cons of investing.  Not just the S&P, but every single Index.

 

The world is at a crossroads

 

* Ukraine

 

* The ME

 

* Xi latest announcement on Taiwan

 

* The race for rare minerals

 

* Water scarcity

 

And the big one that you mentioned in your initial post

 

* Debt, world debt at somewhere North of 300 Trillion.

 

Currently the World is a powderkeg awaiting a spark.

 

Which is why I suggested that normal pros and cons of investing should perhaps be relegated for the time being and investment in Defence Companies might be a good opportunity.

 

Equally, if you do not think the above applies, ignore it and do your own thing.

Yes, thanks. I'm looking for factors that contribute to the analysis, not a rehash of the ones I've posted. Neither am I looking for an answer that might be derived from the analysis, eg, invest in defense industries. If you think you can contribute in any way to answer the question I have asked, that will be appreciated.

[Mike Lister]

The question I ask is, what are the key pluses and minuses that will cause the US S&P to climb or fall, during 2024, below is a brain dump to get started. Please not I've updated it to include a suggestion:

 

Pro’s

 

Falling interest rates mean consumers will switch out of Services and into Goods, where the S&P is heavy, even if GDP is not.

 

Valuations remain high but improved operating efficiencies could mean that profits remain high.

 

A weaker USD should help promote exports and increase demand, AS LONG AS importing economies are able to buy.

 

Note: the election outcome is potentially negative or positive, based on its outcome so is SPECIFICALLY EXCLUDED.

 

Con’s

 

The risk of a credit bubble weighs heavily, Blackrock exited US markets completely as a result

 

The (Bond Market) Yield Curve is inverted. The 10 year and 3 month spread is a key recession indicator, it represents the relationship between long-term bonds and what’s often considered the risk-free interest rate. In late October, the 10 year-3 month spread turned negative for the first time since February 2020. It is now almost twice as negative as the 10-2 year spread.

get.ycharts.com/resources/blog/inverted-yield-curve-what-it-means-and-how-to-navigate-it/#:~:text=An%20inverted%20yield%20curve%20is,more%20than%20shorter%2Dterm%20ones.

Markets are over valued, using historically averages, by between 32% and 50%

www.estimite.com/post/is-the-us-stock-market-overvalued/

 

Companies that must refinance face higher financing costs

 

Excitement over AI may be creating a bubble

 

Economists are split between a mild recession and mild growth in 2024.

 

The war against inflation hasn’t been won yet and the need to reduce rates to stimulate economies is potentially  at odds with winning that war.

www.imf.org/external/datamapper/PCPIPCH@WEO/ECU

 

Government debt is the highest it’s ever been, USD 34 trillion, and climbing faster than it ever has. Any action to reduce the debt such as government closure, reduced services might impact spending and markets.

 

www.pgpf.org/national-debt-

clock#:~:text=The%20%2433%20trillion%20gross%20federal,that%20it%20owes%20to%20itself.

Climate risk is increasing which will result in higher insurance company payouts, loss of productive, business disruption and higher costs and losses.

 

Global war risks have increased in the ME, Far East Ukraine which have to potential to increase the US debt load.

 

Market gains are being driven by only seven giant companies rather than the broader market. In the year ending mid 2022, S&P gains were over 15% but if FANG stocks were removed, the gain falls to only 6%. The picture in the last few months is likely to be even more extreme hence indices are distorted.

[Neeranam]

I wouldn't invest in the S&P now because market movements are influenced by a complex interplay of  factors, and predicting the exact direction of the market is challenging. Diversification and a long-term investment strategy are what I would do. 

Economic downturn due to war, rising interest rate, war, inflation, no thanks. 

 

 

 

[Yellowtail]

I would not expect the rate cuts in the US to do much of anything.

 

My biggest concern is that I think it's taking too long for residential real estate in US to correct, and that we'll see another crash. 

[The Cyclist]

2 minutes ago, Mike Lister said:

Yes, thanks. I'm looking for factors that contribute to the analysis,

 

I thought I gave you 6 factors, ie, 6 bullet points, that you should / could build into your analysis.

 

I also suggested that those factors might trump normal pros and cons.

 

I also said you are free to ignore them if you do not deem them worthy of considering.

 

10 minutes ago, Mike Lister said:

If you think you can contribute in any way to answer the question I have asked, that will be appreciated.

 

I think I did contribute to what will ultimately be your analysis. What you do with contribution is ultimately down to you, not me.

[Mike Lister]

2 minutes ago, Neeranam said:

I wouldn't invest in the S&P now because market movements are influenced by a complex interplay of  factors, and predicting the exact direction of the market is challenging. Diversification and a long-term investment strategy are what I would do. 

Economic downturn due to war, rising interest rate, war, inflation, no thanks. 

 

 

 

My portfolio is spread globally, as follows:

Equities = 47%

The remainder is spread across bonds, gold, money market and other things.

 

Of the 47% above:

US= 49%

UK = 7%

EU = 13%

Dev Asia = 10%

EM = 12%

Japan = 7%

Aus = 2%

 

Really, this thread looks at the 47% of the 49% above rather than my overall investment strategy, which may change at some point, or it may not, depending on the analysis.

 

[Mike Lister]

3 minutes ago, Yellowtail said:

I would not expect the rate cuts in the US to do much of anything.

 

My biggest concern is that I think it's taking too long for residential real estate in US to correct, and that we'll see another crash. 

Fed rate cuts will impact the bond market which will cause mortgage interest rates to fall. It will also put more money into consumers pockets as the cost of their mortgage repayments fall, this in turn will boost consumer spending.

[Yellowtail]

2 minutes ago, Mike Lister said:

Fed rate cuts will impact the bond market which will cause mortgage interest rates to fall. It will also put more money into consumers pockets as the cost of their mortgage repayments fall, this in turn will boost consumer spending.

How big do you think the cuts will be? Mortgage rates have gone from about three to eight percent in three years, yet home prices have not really come down that I can see. 

 

So, with 20% down, the payment on a $500K home has gone from about $2,000 to over $3,000 and the market does not seem to be correcting, that scares me a little. 

 

There are a lot fewer people that can crack a three K nut than a two. 

[Mike Lister]

Back on topic please!

[Yellowtail]

Just now, Mike Lister said:

Back on topic please!

Sorry

[Mike Lister]

1 minute ago, Yellowtail said:

How big do you think the cuts will be? Mortgage rates have gone from about three to eight percent in three years, yet home prices have not really come down that I can see. 

 

So, with 20% down, the payment on a $500K home has gone from about $2,000 to over $3,000 and the market does not seem to be correcting, that scares me a little. 

 

There are a lot fewer people that can crack a three K nut than a two. 

The markets are pricing in cuts of 2% through out the year, it will impact different people in different ways but overall it will produce benefit..

[Mike Lister]

1 minute ago, Yellowtail said:

Sorry

:) Not you, the vid.

[Neeranam]

2 minutes ago, Mike Lister said:

:) Not you, the vid.

Sorry, but some interesting stuff, ie there will be a fed rate cut by end of Q2.

[Mike Lister]

1 minute ago, Neeranam said:

Sorry, but some interesting stuff, ie there will be a fed rate cut by end of Q2.

Sure, but that's commonly understood anyway, some are saying before end Q1. 

[Rimmer]

An off topic post about BitCoin has been removed

[CharlieH]

S&P 500 Forecast & Predictions

One of the most popular stock exchange indexes is the S&P 500. This is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices, and many consider it to be one of the best representations of the U.S. stock market.

Because of this, the S&P 500 is often followed to determine the health of the stock markets in the USA, but globally as well seeing as many of the companies in the 500 have a strong influence over the global markets. The reason why this index is such a powerful one is that the companies involved have a huge sway on the market, but it is usually in an upward trend, which is positive for investors.

 

https://primexbt.com/for-traders/s-p-500-price-prediction-forecast/

[dingdongrb]

$ASKH & $LRCX

[Mike Lister]

6 minutes ago, CharlieH said:

S&P 500 Forecast & Predictions

One of the most popular stock exchange indexes is the S&P 500. This is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices, and many consider it to be one of the best representations of the U.S. stock market.

Because of this, the S&P 500 is often followed to determine the health of the stock markets in the USA, but globally as well seeing as many of the companies in the 500 have a strong influence over the global markets. The reason why this index is such a powerful one is that the companies involved have a huge sway on the market, but it is usually in an upward trend, which is positive for investors.

 

https://primexbt.com/for-traders/s-p-500-price-prediction-forecast/

That's a good read, thanks, anyone interested in the direction of the US indices should click the link. One issue we can add to the con side of the argument is the risk that investors will continue to hold lower risk bonds over higher risk equities, because the gain in equities is not sufficient to justify investing. BUT, that's what Wall Street was saying last year and then in November, the S&P surged and made equities far more profitable than bonds but few people saw it coming. 

[Mike Lister]

6 minutes ago, dingdongrb said:

$ASKH & $LRCX

Those are recommendations that might come from doing the analysis, we're more interested here in understanding the inputs to the analysis, not what the answers might be downstream.

[CharlieH]

Financial Times’ Predictions for 2024: A Glimpse into the Future

 

The Financial Times (FT), renowned for its rigorous analysis and forecasts, has unveiled its predictions for the world in 2024. Reflecting on their previous forecasts for 2023, the FT has managed to hit several bullseyes, with only three misses. Notably, they did not anticipate the surge of the S&P 500 by over 20%, the absence of blackouts across Europe, and the fact that Africa, save for Ethiopia, avoided a string of defaults.

Shaping the Future: FT’s Predictions for 2024

Breaking new ground, the FT’s predictions for 2024 encompass a broad spectrum of global issues, ranging from potential military conflicts and climate change to economic trends and political outcomes. The American political landscape, highly volatile and unpredictable, is a significant point of discussion. The FT predicts that Donald Trump will not reclaim the presidential seat. However, his campaign promises to be a hotbed of contention. In terms of climate change, the FT forecasts that 2024 will surpass 2023 as the hottest year on record, fueled by the relentless march of climate change and the influence of the El Niño phenomenon.

 

FULL ARTICLE

 

Published: December 30, 2023 at 1:21 am EST | Updated: Jan 1, 2024 at 3:39 am EST

[Mike Lister]

Another plus point for higher markets is that Small Caps have surged significantly and they are usually a precursor to gains by Mid, Large and Giant Caps.

 

The FT analysis suggest Trump will not win which will be more positive for markets.

 

 

 

 

Edited January 2 by Mike Lister

[Lacessit]

The only investment ( if it can even be called that ) I have in the stock market is a rare earth company in Western Australia which will be coming on stream in 2025. It has the world's richest deposit of the rare earths used in making permanent magnets, which have widespread applications. 60% of its projected production has been contracted to Siemens.

 

The rest of my money is in term deposits and peer-to-peer lending. IMO stock markets are overvalued.

 

IIRC Dr. Michael Burry is predicting another financial crisis, his track record is very good.

 

Anyone with an education in thermodynamics knows global warming and climate change are inevitable, it's just a question of how much. Not a good time to be buying shares in insurance companies.

[Mike Lister]

5 minutes ago, Lacessit said:

The only investment ( if it can even be called that ) I have in the stock market is a rare earth company in Western Australia which will be coming on stream in 2025. It has the world's richest deposit of the rare earths used in making permanent magnets, which have widespread applications. 60% of its projected production has been contracted to Siemens.

 

The rest of my money is in term deposits and peer-to-peer lending. IMO stock markets are overvalued.

 

IIRC Dr. Michael Burry is predicting another financial crisis, his track record is very good.

 

Anyone with an education in thermodynamics knows global warming and climate change are inevitable, it's just a question of how much. Not a good time to be buying shares in insurance companies.

A lot of very capable thinkers like Burry are predicting another financial crisis, as said in the OP, Blackrock has exited the US markets entirely because of this belief. That's a huge move to take for a firm that size, in the business they are in.

 

I think that value of USD will have a lot to do with what happens, it will also impact expats in Asia because of the exchange rates and Asian economies. A strong Dollar will kill US equities whilst a weak Dollar will stimulate exports and increase demand. But that weak Dollar will also aid EM currencies and EM economies, even if it does make the Baht exchange rate unattractive  to resident expats. Logically, a weaker dollar is  more helpful than not to everyone (except us).   

[UKresonant]

Just now, Mike Lister said:

My portfolio is spread globally, as follows:

Equities = 47%

The remainder is spread across bonds, gold, money market and other things.

 

Of the 47% above:

US= 49%

UK = 7%

EU = 13%

Dev Asia = 10%

EM = 12%

Japan = 7%

Aus = 2%

 

Really, this thread looks at the 47% of the 49% above rather than my overall investment strategy, which may change at some point, or it may not, depending on the analysis.

 

I think I'm 80% equities

US 37%

UK 20%

EU 14%

JP  12%

       17% PacExJP and many fragments.

 

Got rid of 99.9% of gold March 2022 (giving +14% compared with when when I went in 6 months before, and a corresponding -16% on the Equities it was moved to, just after the obvious Russian wipe-outs became apparent).