Investors may need to display agility in 2024 to dodge potential economic blows. As Mike Tyson famously said, “Everybody has plans until they get hit for the first time.”
As the Federal Reserve combats inflation in an abnormal environment following the pandemic, equity markets have become ultra-sensitive to Fedspeak and economic data. And evolving recession predictions among economists suggest heightened uncertainty will continue.
“I think coming out of this very unusual environment from the pandemic, the fiscal stimulus that we’ve had in the system, the ability for households and businesses to lock in low interest rates has created tremendous uncertainty about the pass-through of monetary policy tightening into the real economy and the impact that that’s going to have,” Deutsche Bank Securities chief US economist Matthew Luzzetti told Yahoo Finance Live.
“If you take a step back,” Luzzetti added, “I think most people would have anticipated that we would have gotten a recession at this point in time. Certainly, we were of that camp. But it hasn’t happened.”
Now, Wall Street’s most prominent strategists have a batch of new mantras for weathering uncertainty in 2024, involving agility, discipline, and paying attention to small- and mid-cap stocks.
Here’s what three chief investment strategists think investors should consider going into the new year:
Truist’s Keith Lerner: Don’t put your strategy on autopilot in 2024
“I would say the most important thing is to stay agile,” Lerner told Yahoo Finance Live. “More importantly, have a basis for your view and adjust as the data shifts over time. … We’ll let the data speak for itself. In some ways, we’re data dependent, just like the Feds.”
Truist is currently overweight large caps, technology, and communications, but the firm believes at some point during the year it will make sense to “dig hard into small caps.”
“Right now technology is rich, the earnings momentum is really strong, and the relative price momentum is still really strong as well,” Lerner said. “So we’re staying overweight there. If we start seeing some cracks in those earnings trends, we would shift our position.”
Charles Schwab’s Liz Ann Sonders: Exercise discipline and avoid ‘zombie companies’
“This is the time for disciplined risk management,” Sonders told Yahoo Finance. “And it’s about diversification and rebalancing. That’s the best way to navigate through an uncertain environment.”
According to Sonders, removing the risk of unprofitable businesses is in itself an exercise of balanced discipline.
“I think you want to fade — to use trader lingo — the lower-quality names that have done well but continue to lean in up the quality spectrum,” Sonders said. She noted that indexes with profitability filters inherently are of higher quality.
Although the Russell 2000 is the most widely used benchmark for small-cap stocks and has outperformed the S&P 500 over the past month, Sonders reminded investors that “close to 40% of stocks in that index are not profitable — 31% of stocks in that index are zombie companies, versus the S&P 600 that has a profitability filter.”
“If you look back in every economic cycle going back into the ’70s and ’80s, leadership in the market has changed,” Schutte told Yahoo Finance Live. “I don’t think that investors will be talking about the ARKK holdings, will be talking about technology and growth stocks. I do think there’s other values and other opportunities in small and mid caps.”
A tractor cleans snow next to decorations marking the New Year 2024 during a heavy snowfall in Moscow, Russia, Dec. 3, 2023. (Maxim Shemetov/REUTERS) (Maxim Shemetov / reuters)
In his outlook, Schutte also expects that there will not be a soft landing for the economy following the inflation-busting campaign led by the Federal Reserve.
That economic cycle shift may lead quality small- and mid-cap companies to emerge as outperformers — a projection largely shared by Sonders and Lerner.
“I think there’s some evidence that small caps and mid caps have discounted an earnings decline, with the price action much more limited than the S&P 500, which is considered higher quality and more defensive in nature,” Schutte told Yahoo Finance Live.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
