Senior Investment Editor
Asking our clients how they expect financial markets to fare in Q2 is a good sign of the general adversity observed in markets this year. The year began with discussions of rate cuts and a potential recession that has not yet come true, making 2024 difficult to predict.
“Investors, including Saxo clients, came positively into 2024 after a strong 2023 in which a recession was avoided and great returns were delivered in equities. This position has been rewarded so far in 2024 despite unusual volatility in expectations around central bank policy rates and inflation,” says Peter Garnry, head of SaxoStrats.
Asking our clients how they think the major US S&P 500 index will perform, just above half believe it’ll increase, while almost three out of ten believe it’ll decrease. This hints that a rather large share of retail investors is worried that the good times will not continue and given that US equity valuations are back to dot-com bubble levels we share some of this concern with our clients. However, so far the Q1 earnings season has supported US equities and put the concerns aside.
Half of the respondents see the North American region outperform the other financial regions, while 12% believe it’ll be the worst performing, underlining the little collective conviction. Four out of ten believe Europe will be the worst performing region.
The regional expectations reflect herd mentality and that retail investors are buying into momentum. There is nothing wrong with this as momentum historically has proven to be a good risk premium to earn for investors, but it also makes Saxo clients sensitive to a changing world, and especially if the American exceptionalism ends. In our Q2 Outlook, we moved US equities from positive to neutral because of equity valuation concerns and moved European equities tactically to positive. It is clear we have not convinced clients yet to adopt a more positive view on Europe which is still facing a brutal war on its continent.
The reason for the collective doubt about what will happen on financial markets in this quarter may be found in our clients’ answers to “Which [macro-economic events]] do you think will affect your investment strategy in the coming quarter. Here central bank policy seems to be most important, while both geopolitical tensions, the US election, and recession scares play a role for at least one out of four respondents.
“With interest rate cuts continue to be postponed, geopolitical tensions still high, and the US election gets closer, there is a lot of room for increased volatility in financial markets that merits that clients review whether their portfolios are set up for a turbulent quarter and beyond,” says Garnry.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
