Happy New Year to you all.
Trade View (human) traders are all back on deck and excited for another big year.
Let’s take a quick look at some of our thoughts for the year ahead.
Key theme(s)
Inflation remains the key theme of the year.
Last year it was all about how quickly it went up, this year it’s, how quickly it can come down. Early signs are positive with December’s inflation reading showing declining inflation for the second month in a row.
Inflation ties in with talks of a recession, particularly meaningful in the US (the world’s largest economy).
The key question being asked is ‘can the Fed navigate towards a soft landing?’ – Essentially, can they bring inflation down while not sending unemployment sky high and causing a deep recession?
Other notable themes include the reopening of China…
Will this have a positive impact on inflation coming down (improving supply)? Will President Xi allow cases to continue climbing and not turn back? Will Australia’s economic boom as they make friends with China?
S&P 500 year end?
Arguably the world’s leading market is the S&P 500, hence we see all the ‘year-end’ forecasts.
Much discussion is currently around hard landing vs soft landing.
Our view is that we could see a similar end to the year, regardless of which side of the fence you currently sit on.
Scenario 1: Inflation falls ➡️ Fed don’t hike as much ➡️ less of a recession / no recession
S&P steadily climbs through the year
Scenario 2: Inflation higher ➡️ Fed remain aggressive ➡️ hard recession
S&P takes another big leg lower, but we see a strong rebound (more volatility) towards the back end of the year as we move out of recession territory and central banks even start to cut rates.
Both scenarios could play out, yet we could see the SPX finish the year in a similar place.
Black swans…
‘Scenarios that occur which are incredibly rare, they cannot be predicted but are really impactful’
In 2022 Russia invaded Ukraine, an event not foreseen by an overwhelming majority.
It sent shockwaves through markets, causing extreme spikes in volatility and price, particularly in directly affected commodities like Oil and Natural Gas.
So, what could be the 2023 swan?
Complete crypto collapse
FTX is just the tip of the iceberg, Binance soon follows and all coins go to $0.
BoJ HIKES rates
BoJ interventions, FX backdrop, wage growth momentum, inflation at 3%… they couldn’t, could they?
West and Trump battle
Kanye & Donald go head to head in a race to be the 2024 Republican presidential candidate.
While all seem improbable, that’s the point!
How would you react to these events?
X-Chat: Get involved!
Start-of-year projections end up changing after one month (or one week at major investment banks).
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