What happened this week

December capped off an incredible year end rally for the US equity markets. Throughout the month investors who had previously failed to commit, holding cash on the sidelines, rushed into the markets in a “FOMO” (Fear Of Missing Out) surge of new buying.

Comments from the Federal Reserve convinced markets that the inflation battle may have been won, and futures markets reflected hope that interest rate increases were ending, and the stage set for rate cuts hoped for in the run up to the November elections. Strong employment statistics and retail consumption through the holidays showed the US economy's resilience while Inflation and energy prices softened.

As we look to 2024, we believe that interest rates will stay steady, with no significant decline in the short or medium term. In fact, we may be in a short term high for Yields on longer-term government debt. We still see a flat-ish yield curve, possibly turning positive as the year progresses.

Equity markets may find this situation disappointing, and the chance for increased volatility and a series of up/down moves ahead of the elections will make equity markets risky.

The stock markets have continued to climb to new high in recent days, the S&P 500 entering into bull market territory; having risen more than 20% since its previous lower and as of Friday passing its previous high. 

Tech stocks make up 28.9% of the index and it is this sector that is largely driving up the index to new highs. Apple, Microsoft and Amazon all up between 3-6% in the past five days, most surprisingly is Apple’s rally following three consecutive downgrades in the first week of January. Market analysts suspect a surge in trading from AI, non-discretionary buyers and tech sector momentum is continuing to drive Apple higher.

Across the US the presidential race is in full swing, Tuesday all eyes are on New Hampshire as Trump is aiming to drive his last remaining rival, Nikki Haley, to secure for himself the GOP nomination.