One technical strategist says U.S. stocks could be in for a tough year, while U.S. 10-Year Treasury Bond Yieldwill rise back above 5%, and this year may become a “year without consensus.”
S&P 500 IndexIt rose sharply in the last two months of 2023, rising 24.23% for the whole year. This is the fourth rising year in 5 years.
The Federal Reserve said it may cut interest rates at least three times this year, amplifying the upward momentum. However, the market still views this as a conservative estimate and is currently pricing in as many as six rate cuts.
Ron William, market strategist and founder of RW Advisory, said on Tuesday (2nd) that the market is at a “behavioral inflection point” after the Federal Reserve’s long-awaited shift to a dovish stance.
“From a tactical perspective, the triple whammy of trends, sentiment and industry rotation vulnerabilities has been present for much of last year,” he said. “From a macro perspective, the market may also be more reliant on growth data because, according to research, We are still in the late stages of the cycle and not the overvalued valuations that the market has been relying on.”
S&P 500 IndexThe rise was driven primarily by a handful of stocks. Information technology soared 56.4% last year, communication services rose 54.4%, and consumer discretionary goods rose 41%.
William said macro, fundamental and technical analysis by RW Advisory showed risk aversion in U.S. stocks due to “record short covering exacerbating extreme overbought conditions” and what he called a “flux into junk assets.” Smaller, lower-quality stocks attracted a wave of speculative investment at the end of the year.
“Short covering” refers to investors buying back borrowed assets to establish a short position against a specific stock or asset, thereby closing the position at a profit or loss.
William said all this “further exacerbates the fragility of an already narrow rotation, with economically sensitive stocks likely to feel pressure as the Fed potentially lowers interest rates, and particularly if economic growth continues to be disruptive.” At the end of a down cycle when people are disappointed, then these stocks may feel the pressure.”
The benchmark 10-year U.S. Treasury yield rose above 5% in October for the first time since 2007, as central banks said interest rates may have to stay higher than expected for an extended period.
However, as of Tuesday morning, as the Fed turned dovish and expanded its bets on rates and the size of rate cuts in 2024,10-Year Treasury Bond Yieldhas plummeted to just over 3.9%. Yield is inversely proportional to price.
Although the market expects the Federal Reserve to cut interest rates as many as six times this year, William believes that in the long term, bond yields will return to and exceed the 5% level, which is part of the “long-term trend of structurally higher and choppy volatility.” .
“That’s probably why the market is still struggling to this day. We’ve had a lot of volatility along the way, but the trend remains up,” he said. “Compared to history, the latest correction is basically similar to October 2022. decline before rising to the historical threshold of 5%.”
He said the rate cuts and stock market gains over the past two months showed that much of the positive momentum from potential rate cuts has been priced in, meaning the market may be a little ahead of itself on future rate changes.
William said, “In addition, we must also bear in mind potential policy mistakes that the market has so far believed did not exist, and the concept of a soft landing that is still strong, so part of the job of behavioral tactical analysis is to look for these inflection points and non-consensus actions that may occur. I think this year This could be a year without consensus.”
Due to underlying weakness in risk assets and an increasingly worrying geopolitical backdrop,goldSpot prices had their strongest year since 2020. The closing price in 2023 easily exceeded the $2,000 per ounce mark.
William expects safe-haven flows to continue as geopolitical tensions increase in 2024, and expects the precious metal to break through the $2,700 mark by the end of the year.
2024-01-02 11:13:15
#Technical #Strategist #year #stock #bond #markets #fail #reach #consensus #Anue #JuhengUS #Stock #Radar
