This is the final update of the year. Let me begin by thanking my subscribers for hanging in there with me during 2023, and by wishing you much investment success and personal happiness in 2024.
In the spirit of keeping this short, you will be delighted to know that I am not providing commentary about the weekly news, since the week was relatively quiet and uneventful. In any event, investment performance was similar to recent weeks:
Stocks and bonds better bid, slightly up (again) across most markets
UST yields continued to gradually decline across the curve
Corporate credit spreads grind ever tighter
Gold and Yen slightly stronger; oil and US Dollar slightly weaker
Looking back, the major themes that shaped 2023 included:
The highly anticipated US recession that never came
The highly anticipated recovery in China’s economy that also never came
A US bank crisis which occurred in late 1Q23/early 2Q23 that was not foreseen
The Israeli-Hamas conflict which broke out in early October and was also not foreseen
Faster-than-had-been-anticipated disinflation in 4Q2023 in the US, Eurozone and UK.
The tables in the last section of this update are the final ones of the year, providing updates on how the indices and other assets tracked by EMC performed in 2023. In summary, stocks (with the exception of China) were a one-way ticket higher in 2023, and bonds – which had rather sharp volatility throughout the year – ended about where they started. The volatility index (VIX) for US stocks fell below pre-pandemic levels although US Treasury market volatility (MOVE) remained highly elevated into year-end, well above pre-pandemic levels.
I will provide my investment ideas next week for the coming year, which is just around the corner. Economically, I expect:
The US economy to slow (it can’t continue at the pace of 3Q23) but to avoid an official recession as it continues to chug along showing amazing diversity and resiliency (noting that the US election could muddy the waters),
The European economy to struggle with stagnant growth which will be helped when the ECB begins to loosen its monetary policy,
The UK economy to continue to experience troubling stagflation, but it will buckle under the weight of a confluence of factors to drive it into recession, and
China to provide a cocktail of monetary and fiscal stimulus, along with a more coherent and business-friendly approach, that should enable Chinese stocks to begin to bounce off of very low valuation levels.
Recall that I said a while back when the yield on the 10y UST was in the mid-4% context that we would see 4% yield again on the 10y UST before we see 5%. Fortunately, I was right albeit barely – very right in fact. My next bold assertion is I see the order of central bank rate reductions as follows: ECB first, BoE second and Fed third. That the Fed could cut before the ECB or BoE given the state of the relative economies is simply absurd, although based on FX movements, the market thinks otherwise. Let’s see.
My Trades This Week
All ETFs: Lightened up on European and Japanese equities, went longer UK corporate bonds and Chinese equities (yikes!).
The tables below provide detail across various global and US equity indices, the US Treasury market, corporate bonds and various other asset classes. These are for the end of December, the end of 2H23, the end of 4Q23 and the end of the full year.
Corporate bonds (credit)
Safe haven and other assets