April 2024
Dear Investors,
The market melt-up that started late last year took continued in March. At some point, this will stop and that should be welcomed. When it gets too easy, markets have a way of humbling investors, especially when they all pile in the same stocks.
That being said, this does not need to be a 2022-like bloodbath. Markets can correct through time as well as price and this is the scenario we expect for the coming months. Many investors are still laser-focused on US and European rates of inflation and, every time an economic number comes in hotter than expected, interest rates rise and equity markets pause in their march higher.
Having said that, we think inflation is an 2022-2023 story and that it doesn’t matter that much whether inflation is at 2 or 3%. Yes, central banks around the developed world have this completely arbitrary 2% or less inflation per year, but focusing on the latest inflation reading will not help your investment objectives and we strongly advise you to tune the noise out.
Speaking of central banks, the Swiss National Bank was the first of the big actors (Switzerland may be a small country, but the Swiss Franc plays an outsized role) to lower rates, from 1.75% to 1.5%, as inflation is now back to only 1% there. One can only wish the European Central Bank would be as brave as their Swiss brethren, but they sadly seem transfixed by the US Federal Reserve’s decisions and will therefore probably be late to the party and harm the European economy unnecessarily.
So, what next for equity markets? If only we knew…Q1 2024 earnings reports are about to come out, which will allow us to have a better insight in what is going on in, in particular, Big Tech and consumer discretionary companies. More info next month, we will also take the opportunity to look back, with a little more perspective, on recent events in the Middle East and their impact on the markets.
Best regards,
Your CaridaB Group Team
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