29.11.2023 – 07:04

Colivar Weekly Market Pulse

Here you will read the Colivar Weekly Market Pulse,courtesy of our guest author Mahnoosh Mirghaemi.

Please meet Mahnoosh here https://www.colivar.ai/about-creator

Read Every women's key to a second income here https://www.colivar.ai/

Enjoy our weekly insights about markets, macro-economics, geopolitics and investing.

Navigating Market Shifts: From Thanksgiving Tumbles to Year-End Triumphs

As we reflect on Thanksgiving, a time for gratitude, comparing the stark contrasts in the stock market’s performance is noteworthy. While Thanksgiving 2022 came at a time when stocks were significantly down, 2023 has seen a remarkable recovery, offering investors more reasons to be thankful. This period also signals a shift into the year’s final stretch, an opportune moment to delve into the intricacies of market performance and set the stage for the year ahead.

Post-Thanksgiving Stock Market Trends

Historically, the stock market has shown a tendency to perform well post-Thanksgiving. Over the last three decades, December has averaged returns of around 1%, with the market often logging gains during this period. Notable years like 2010, 2003, 1999, and 1998 witnessed significant post-Thanksgiving rallies. When the market rose between Thanksgiving and year-end, it typically indicated a positive momentum into the following year. This trend, coupled with the current market upswing, sets an optimistic tone for the upcoming months.

Black Friday and Consumer Spending

Black Friday shopping trends this year are particularly significant. Consumer spending during Black Friday and Cyber Monday is expected to increase by 13% compared to last year, indicating resilience in consumer sentiment. This uptick in spending could provide a more nuanced understanding of the U.S. consumer’s capacity to withstand the pressures of an economically challenging environment.

Sustaining the Stock-Market Rally

The S&P 500, Nasdaq, and even the Russell 2000 all showed positive moves in November, suggesting a potential rally through the typically stronger fourth quarter. Three key ingredients could sustain this rally, i.e., the ongoing moderation in inflation, a Federal Reserve that is stepping to the sidelines with rate hikes, and a gradual cooling in the economy. Taken together, these factors point towards a market conducive to growth.

Global Bond Market Challenges

The bond market has been challenging for investors, with interest rates continuing their upward trend. This has resulted in significant declines in bond prices. However, recent signs of moderating inflation and economic growth have led to a retreat in interest rates, offering a glimmer of hope. With rates still at a decade-high, this presents new opportunities in the fixed-income market. Investors are advised to consider diversifying their bond portfolios, emphasising quality, and potentially lengthening the duration of their bond holdings to align with the current market conditions.

The global bond markets, particularly for long-term German bonds, face unprecedented pressure. Concerns over increased supply in developed markets have intensified, especially as governments strive to balance budgets amid volatile bond conditions. Germany’s recent decision to suspend its borrowing limit for the fourth consecutive year, following a top court ruling, has put bond vigilantes on high alert. This situation mirrors past challenges, such as last year’s gilt crisis in the U.K. and the recent surge in long-term U.S. yields due to Treasury supply concerns. The repercussions of Germany’s budgetary pressures are now rippling through global bond markets, affecting U.S. Treasuries and altering investment landscapes.

Global Oil Market Dynamics

Recent developments suggest a potential shift in OPEC+ strategy, with the likelihood of deeper supply cuts becoming a real possibility. Despite initial optimism, Brent crude prices have stabilised around $82 a barrel amidst record levels of bearish options. OPEC’s recent unpredictable decisions, including postponing and moving its meetings online, are influencing the market’s cautious stance. To regain market confidence, OPEC+ may need to present a significant and cohesive strategy, possibly involving challenging negotiations for additional cutbacks by member countries.

Sector and Small-Cap Analysis

In 2023, the S&P 500 has witnessed narrow leadership, raising questions about the value of diversification. The index’s largest companies have driven most of this year’s gains. Meanwhile, as represented by the Russell 2000, small-cap stocks have lagged significantly behind. However, given the resilience of the economy and the seasonal patterns that historically favour small-cap over large-cap returns, there appears to be an opportunity for small-cap stocks to make a comeback.

Conclusion

As we approach the end of the year, the stock market presents a cautiously optimistic outlook. Investors are encouraged to consider the insights provided and review their portfolios, particularly in light of the global developments in the bond market. The landscape is complex, but understanding these dynamics is crucial for making informed investment decisions.

We encourage investors to delve into analyses of Eurozone bank stocks, trends in Treasury yields, comparisons of current financial conditions to previous cycles, and the interplay between real rates and equities, amongst others. These insights offer a deeper understanding of the current market climate and potential strategies moving forward.

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Karen Wendt

President of SwissFinTechLadies