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Opinion: How investors and stock traders can face 2024

An economic “soft landing” appears to be on the agenda.»

The recovery of the American stock market at the end of the year seems intact.

Lately, I have been focusing on the performance of equity hedge funds and the need for hedge fund managers to preserve and improve returns ahead of the December 31 incentive fee calculation date. Funds that have not yet closed their accounts are embarking on a “beta hunt” in order to preserve performance bonuses.

Meanwhile, small-cap stocks are experiencing multi-month bullish breakouts during a seasonally positive period for the group. Further progress will confirm the bullish prognosis for these stocks, which could trigger a rush of FOMO.

Additionally, Bitcoin BTCUSD,
-0.50%
is a real-time indicator of the liquidity of the financial system and it continues to increase, indicating strong market “animal spirit” activity. While I’m a cryptocurrency skeptic, bitcoin might have more room to grow. Jurrien Timmer of Fidelity Investments has an estimate of the fair value of bitcoin, and bitcoin prices are moving within this range.

In short, the foundations of the Santa Claus gathering seem solid.

The challenges of 2024

Looking ahead to the new year, investors and traders are hearing calls to take profits in response to stocks’ strong rally from the October low. Keep in mind, however, that the latest BoA Global Manager Survey does not show the fingerprints of a major market leader. As global institutions’ risk levels normalize, the numbers do not correspond to a saturated long position and stock weightings can increase much further before reaching a saturated long condition, which would be contrarian bearish.

Here’s the big picture from a macro perspective. The US market is ignoring the US Federal Reserve’s rate cuts expected in the first quarter of 2024. “Recessionists” and bears have opposed the Fed’s bullish rate cut rhetoric on the grounds that the cuts would only occur in response to a slowdown in economic growth and a possible recession. But many Fed speakers emphasized the message that the Fed can cut rates if inflation falls.

An economic “soft landing” appears to be on the agenda. The Atlanta Fed’s GDPNow nowcast for fourth-quarter 2023 GDP growth is 2.8%, which is nowhere near recession territory.

Main risks

My sunny outlook is not without risks. For example, FedEx’s FDX,
-0.42%
The most recent earnings report contained a recession warning: “U.S. package volume declined 3.5% in the November quarter, compared with a 15.1% decline a year ago . In other words, the two-year volume trend is profoundly negative and worse than last quarter. So much for improving the demand for boxes…”

Additionally, the stock market was supported by strong financial liquidity. One of the key announcements to watch is the Quarterly Reimbursement Announcement (QRA) at the end of January, in which the US Treasury announces its issuance plans. Despite the growing federal deficit and significant financing needs, the Treasury issued far more bonds than coupon-bearing securities. Lower-than-expected coupon supply supported bond prices, which supported stock valuations.

Additionally, increased Treasury issuance has reduced repo levels at the Fed, which has the effect of increasing liquidity in the banking system. The short-term fate of the Treasury and the stock markets will be at stake at the next QRA.

Yet my inner investor and inner trader are now positioned bullishly. My inner trader predicts it will start taking profits in early 2024, but overall I’m short-term bullish on stocks. The US stock market could see some turmoil in the new year as hedge fund flows dry up and calls for profit-taking. But the macroeconomic outlook is positive and investors should enjoy a decent 2024 for stock returns.

Cam Hui writes the Humble Student of the Markets investing blog, where this article was first published. He is a former equity portfolio manager and sell-side analyst.

More: This record stock market rally is living on borrowed time

Read also : Ed Yardeni: 12 Reasons Stock Investors Will See the S&P 500 Hit 5,400 in 2024

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