Darius joined Nicole Petallides on Schwab Network last week to discuss the outlook for asset markets, China, inflation, and more.
If you missed the interview, here is the most important takeaway from the conversation that has significant implications for your portfolio:
Although There Is An Elevated Risk of A Short-Term Correction, We Are Unlikely to Exit The Risk-On Market Regime Until Mid-year, At The Earliest
- China has been a positive contributor to the current GOLDILOCKS Market Regime. In mid-December, we authored a view that China would front-load policy support at the beginning of this year. That is what we have witnessed, as the PBOC has been actively implementing monetary policies to support the economy. Moreover, China has revealed ambitious economic targets for 2024, aiming for a 5% GDP growth, the creation of over 12 million jobs, and a 3% inflation rate. To meet these targets, the PBOC will likely continue easing policy, and that is likely to continue supporting global liquidity.
- We remain in the GOLDILOCKS Market Regime that we have been in since November, and we see further upside potential ahead to at least mid-year. That said, a short-term correction would be healthy and would allow the market to extend its bullish momentum further into the year.
- Looking further out, we believe inflation is likely to rise in the second half of the year. As a result, we believe the Fed is unlikely to achieve the three rate cuts this year currently projected in the Fed’s Dot Plot, and any rate cuts the Fed implements will likely come in June and July and are likely to be the only ones. This rise in inflation, if it does occur, is likely to prompt both the Fed and asset markets to readopt the “higher for longer” narrative, putting an end to the current GOLDILOCKS Market Regime.
That’s a wrap!
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