Investors are entering 2024 with uncertainty, facing potential risks from both the Federal Reserve's monetary policy and the economic impact of Donald Trump's return to the White House.
Rollercoaster market moves in the final days of 2024 offered a blunt reminder that investors are heading into a year of living dangerously. Stocks and bonds lurched lower after the Federal Reserve ’s final policy meeting of the year, spooked by the notion that the central bank may be unable to keep cutting rates (as it had previously expected to) because of still-simmering inflation. The key is not what Fed chair Jay Powell said.
It is what he was careful not to say but what every fund manager knows: when Donald Trump returns to the White House this month, his economic agenda could be bad for growth, fuel inflation, or even both. So for the first time in many years, investors have what they call “two-way risk” in the Fed policy that drives the bond market and underpins global asset prices. The central bank might be able to keep on cutting — the hunch is that this would be Trump’s preference. But it’s not outlandish to suggest it might start raising rates again instead. This could get lively. Stocks are no easier to read. The miracle that is the US market, fresh from two years with gains of around 20 per cent each, may or may not be on borrowed time. The positive case is that richly valued tech companies deserve their valuations because of their earnings. “What will drive global markets will be the US,” said Niamh Brodie-Machura, co-chief investment officer for equities at Fidelity International. “It looks expensive but there’s a reason for that.” Some even argue that a new paradigm driven by artificial intelligence makes boring old business and market cycles a thing of the past — even before you consider American exceptionalism. The pessimistic case is that this is getting silly, AI is overhyped and something has to give. My crystal ball is at the repair shop so I don’t know how this will pan out. But I do remember 2022 — hardly a feat of memory but still a period that money managers would rather forge
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