The Notebook: Victoria Scholar on why 2024 might be a reality check for investors
Where the City’s movers and shakers get a few thinks off their chest. Today, Victoria Scholar, head of investment at Interactive Investor, takes the pen.
If January’s anything to go by, 2024 could be a reality check for markets and investors
Markets have had a tough first week of the year. The S&P 500 suffered its worst week since October, snapping a nine-week winning streak, which was the longest since 2004. Apple was a major stock market winner in 2023, as part of the Magnificent Seven which was responsible for much of last year’s ebullience.
However, the tech giant had a tumultuous beginning to 2024, ending the week down over three per cent after Barclays downgraded the stock to underweight, citing weak iPhone 15 sales. Bonds also sold off with the 10-year US treasury yield staging gains alongside the US dollar which logged its best week since
July 2023.
After an impressive period for markets last year with the Nasdaq, FTSE MIB and DAX gaining 43 per cent, 28 per cent and 20 per cent respectively, 2024 has so far been somewhat of a reality check. Investors had fully priced in the first US rate cut in March. But better-than-expected US jobs data and hawkish Fed minutes resulted in recalibrated expectations. Investors are now pricing in around a 75 per cent likelihood of monetary loosening in the first quarter.
While there is still plenty of evidence to believe that rate cuts are on the cards soon, including inflation’s downward trajectory and a resilient US economy, there are also reasons to be cautious that investors may have underestimated, which could push back the start of the Fed pivot. The Israel-Hamas war and the Houthi attacks on Red Sea shipping have led to surging freight costs and could push oil prices higher, both inflationary forces that could derail the recent disinflationary trend.
So how much should we read into January’s price action as a bellwether of what’s to come in 2024? The January barometer thesis argues that performance this month will predict what’s in store for the full year. If the theory holds this year, investors could be in for a rough ride. While some traders believe in it, many others believe it is misleading.
What we do know is that investors shouldn’t get too comfortable, and a bullish run is never a guarantee that further positivity will ensue.
Time to invest in China?
Chinese stocks have fallen to a five-year low, suffering their worst start to the year since 2019. The CSI 300 slumped 1.3 per cent on Monday, logging its fifth straight negative session to hit the lowest level since February 2019. It comes off the back of a difficult 2023 when the CSI 300 logged its third straight annual loss. Some fundamental market analysts believe now is a great time to buy stocks in China, given their depressed valuations. Others argue that ongoing concerns about weakness in the world’s second largest economy, deflation and its property sector woes will continue to drag on performance.
House prices continue up, up and up
According to Halifax, UK house prices rose for a third straight month in December. The average cost of a home went up by 1.1 per cent to £287,105, up just over £3,000 versus November. A shortage of housing supply is supporting the market offsetting headwinds from higher mortgage rates, the cost of living crisis, and a weak economic backdrop. Despite this, Halifax still expects house prices to fall by between two per cent and four per cent this year as the Bank of England’s 14 consecutive rate hikes continue to take their toll.
Cuts at Channel 4
Channel 4 has confirmed that a major round of job cuts is on the cards. It could be slashing as many as 200 jobs from its workforce which has grown to a record 1,200 as part of a major expansion in recent years. These cuts are in response to the biggest downturn in the advertising market for 15 years. Channel 4 said “like every organisation, we are having to deal with an extremely uncertain economy in the short term and the need to accelerate our transformation to become a wholly digital public service broadcaster in the long term.”
A podcast for the new year
The start of a new year is a time when plenty of predictions are made about what is in store for stock markets over the next 12 months. In the latest On The Money podcast my colleague Richard Hunter, head of markets at interactive investor, explains why maturity is the key watchword for investors in 2024. Hunter tells host Kyle Caldwell why the factors most likely to influence investors are as follows: M&A, AI, Turbulence, UK market, Recession, Inflation, Technology’s Magnificent Seven, Yields. New episodes land every Thursday, with the next focusing on the key personal finance changes that are taking place over the next couple of months. On The Money is available on various podcast apps, including Spotify, Apple Podcasts, Amazon, and Google Podcasts.
Quote of the week:
“There are now tens of millions of people who care about this – care a lot. They’re furious in many cases.”
Sir David Davis on the Post Office scandal and the ITV drama ‘Mr Bates vs The Post Office’