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Rally in the stock market to close 2023

Watch our latest Market Moves, providing a round-up of the market movements and the global investment outlook for the week beginning 8th January 2024.

| 5 min read

This week Head of Fixed Income Research Oliver Faizallah reflects on market movements from the past week, provides an outlook on the economy more generally, and considers the implications of what is unfolding.

Transcript below:

Erica Whyte:
Happy New Year. Thank you all so much for joining us for the very first Market Moves episode of 2024.

My name is Erica Whyte, alongside our head of fixed income research. Oliver Faizallah here to break down the market-moving events of the last week, namely a rally in the stock market to close 2023 has left people bracing for impact as we head straight into fourth-quarter earnings season. Reminding us yet again that the stock market and the economy are two very different things.

But what is the impact on markets? Well, that's where Ollie comes in. Ollie, thanks much for being here. How's it going?

Oliver Faizallah:
Thanks for having me. Um, yeah, not too bad, but the, uh, the markets have had a little bit of a disappointing start to 2024. Um, a lot of that is a reversal of some of the exuberance that we saw at the end of last year.

Erica Whyte:
Santa Rally.

Oliver Faizallah:
Exactly. Yeah. So yeah, a few sore heads maybe in the first week of January, uh, we've had both bonds, uh, and equities down the first week. Now a lot of that is because of the release of the FOMC minutes.

Erica Whyte:
Yeah.

Oliver Faizallah:
The Fed were a little bit hawkish in their messaging, really pairing back on that view that rate cuts are coming at, you know, sort of beginning of this year. They were really pushing that out a little bit. Uh, secondly we had jobs data out as well, which was a little bit more positive than maybe the market or the Fed hoped. So stronger job data means that perhaps we're gonna get better growth going forward and there's less chance of a, of a cut sooner rather than later.

This was dampened a little bit by the services ISM number that came weaker than expected. So the markets took that as a bit of a positive to sort of put a ceiling on some of that sell-off. And, you know, it was, it was sort of hopeful that maybe in 2024 we'll see some worse economic data come through and perhaps that will cause the, uh, central banks to maybe rethink when they'll be cutting rates.

Erica Whyte:
That's How we talked about, um, in 2023 was the worst data is good actually. The Seesaw.

Oliver Faizallah:
Right, absolutely. Yeah. That's the thing. And you know, when you look at what's happened to markets over the past week, that's exactly what's being highlighted. This, you know, good economic data coming out. That's bad for markets. Bad economic data coming out. That's pretty good for markets and we've seen that through stronger jobs. Well that's good. More people are employed like what's not to like? Well, more people are employed, more people are spending more. We get higher growth or there's no need to cut rates that's negative for equities. That's negative for bonds.

Erica Whyte:
Yeah.

Oliver Faizallah:
But then if we see that starting to fall off or we see more of a trend in the likes of the ISM services that we've seen, well that's bad data. Surely that's bad. Maybe not for the markets because there is that dislocation between the two. Uh, you know, if that, if that causes central banks to pivot to cut rates, we might see a, a bit more of an equity rally and we'll certainly see a bond rally for It.

Erica Whyte:
That's fascinating stuff. Uh, so what are the implications of those moves?

Oliver Faizallah:
Well, that's the thing. The market is very much focused on central banks and what they're doing with rates. Uh, a very similar story to what we had in 2023.

Erica Whyte:
Yeah.

Oliver Faizallah:
So there's nothing really new and that means that we have to continue being data-dependent. So you mentioned that we have Q4 earnings that are coming out soon. We have a lot of data that's going to be released that will reflect a Christmas trading period. All of that is going to paint a picture for what central banks may or may not do over the course of 2024. We think that it's probably best to be a little bit underweight risk at the moment. I think that things, you know, could sell off, um, you know, more than they could potentially rally. Uh, and even if we do get negative earnings coming through and rate cuts coming through, that's going to be because we're looking at a potential recession. So yes, the short-term positive of rates being cut, but I think if you look longer term, why are rates being cut? We're heading towards a recession, it's probably not the time to be piling into really, you know, high-risk assets.

Fascinating stuff. Ollie, thank you so much for all your expertise here today.

Oliver Faizallah:
Thank you.

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Rally in the stock market to close 2023

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