This will be the year of investing dangerously
Open the White House Watch newsletter for free
Your guide to what the 2024 US election means for Washington and the world
Rollercoaster market movements in the final days of 2024 offered a stark reminder that investors are headed for a year of dangerous living.
Stocks and bonds jumped down After the Federal Reserve’s year-end policy meeting, concerns that the central bank may not be able to keep interest rates on hold (as previously expected) due to still simmering inflation.
The key is not what Fed Chairman Jay Powell said. It’s what he was careful not to say, but every fund manager knows. when Donald Trump returns to the White House this month, his economic agenda could be bad for growth, inflation, or even both.
So for the first time in years, investors have what they call a “two-sided risk” that the Fed’s policy, which is boosting the bond market and underpinning global asset prices, could continue to cut. the assumption is that that would be Trump’s preference. But it’s not out of the question to start raising rates again.
Stocks are no easier to read. The miracle that is the US market, with gains of about 20 percent each, is that the positive case is that the rich tech companies deserve their valuations. Global markets will be the US,” said Niamh Brodie-Machura, co-chief investment officer for equities at Fidelity International. “It’s expensive it seems, but there is a reason for that.”
Some even claim that a a new paradigm Artificial intelligence is making boring old business and market cycles a thing of the past even before considering American exceptionalism. The pessimistic case is that this is getting silly, AI is overhyped, and something has to give.
My crystal ball is in the repair shop so I don’t know how it will turn out. But I remember the year 2022. hardly a feat of memory, but a period that money managers would prefer to forget. Bonds and stocks, meanwhile, have fallen significantly, each about 20 percent in a year, undermining the inverse relationship that generally provides a safety net for investors. Growth shocks and interest rate cuts are good for bonds. Inflation and interest rate hikes are not. It’s not hard to imagine a return to this nightmare scenario.
Investors are in a slightly better position for 2025 than they were in December, a monthly fund manager survey from Bank of America found what it called “trending sentiments.” sentiment, as measured by allocations to cash and stocks, as well as economic expectations, strengthened at the fastest pace since June 2020. This was a bit too bleak. Fortunately, though painfully, the shock of the Federation’s new view of the world knocked some of the foam off.
Meanwhile, markets still have no idea what a returning President Trump will actually do. In an extreme case, trade tariffs of 60 percent on imports from China and 20 percent from the rest of the world are possible. Equally, a much lighter touch is a set of tariffs that are more are more symbolic than impactful.The crackdown on illegal immigration can also range from small numbers of targeted deportations to mass detention and severe labor market disruptions.
This leaves investors blindfolded and tiptoeing around the rakes. “Meh is the most likely path for 2025 in my opinion,” wrote Henry Neville, portfolio manager at Man hedge fund group. in the last blog. “I see a resurgence of dormant, not dead, inflationary pressures from the 1970s. Both stock and bond markets freak, it feels like 2022!. But it’s equally conceivable that we get more market-good Trump (deregulation, tax cuts, government efficiency, Ukraine peace deal) than market-bad (policy instability, tariffs, labor market restrictions) and then we can party like 1996 Neville tends to be pessimistic, but fireworks are ahead either way.
Adding to the anxiety, Trump likes to make political announcements that sometimes have a significant impact on the market in seemingly randomly timed social media posts, a strategy that throws rivals and opponents off balance, but also unnerves money managers and injects volatility into asset prices governors generally say they know it’s coming and are more willing to ignore the noise than they were in the first Trump administration. I’m not so sure his first few months will be a test, and then investors can try to gauge what kind of president they’re really dealing with.
The good news is that while bonds are potentially at risk from inflation, gold, which is an all-weather hole, is now up 26 percent, outperforming the S&P 500. The think tank believes that official reserves of gold are on track to reach their highest point since 1965. The result. cautious investors may need to protect themselves.
“We must be humble and say: “I don’t know where it’s going to break,” says Peter Fitzgerald, director of macro and multi-asset investing at Aviva Investors. “The key is not to be overconfident.”
English