2024 Week 12

1. Active Managers Dive into Equities

October last year saw the S&P 500 at 4,100, with active managers holding less than 25% in equities. Now, with the S&P 500 soaring over 1,000 points higher, a dramatic shift has occurred. Active managers have escalated their equity exposure to more than 104%, indicating a leveraged long position. This level of investment is unparalleled since November 2021, reflecting a bold move in the financial world.

2. Rising Prices, Rising Optimism

During the bear market lows in October 2022, bullish sentiment was scarce, with only 25% of newsletter Bulls. Fast forward to today, and we see a significant leap to over 60% Bullish sentiment - the first such rise since July 2022. The catalyst? A robust 44% increase in the S&P 500, soaring from 3,577 to 5,165 points.

3. Stubborn Inflation Deters Federal Reserve Cuts

The journey to a 2% inflation target is fraught with challenges, as recent CPI figures (3.2% overall, 3.8% core) surpass expectations. These statistics have virtually eliminated the prospect of a Federal Reserve rate cut this March, with a mere 1% chance on the table. Core CPI shows a promising downward trend, yet the headline inflation might see a rise due to escalating commodity prices. This dynamic could influence the Fed's decision-making in May.

4. Japan Ends Negative Interest Rates

A historic moment for the Bank of Japan as it increases rates for the first time since 2007, thus concluding the era of negative interest rates. The prime mover? Wage inflation. Japan's largest trade union has secured a notable 5.3% wage increase, the most substantial in over three decades.

5. The U.S. Debt Challenge

The U.S. is grappling with a concerning debt spiral: more debt plus higher interest rates leading to elevated interest expenses. The national debt has surged by 47% in just four years, now exceeding $34.5 trillion. With interest rates rising, the U.S. faces an unprecedented situation where its annual interest expense on public debt has topped $1 trillion.

6. The Surge of Bitcoin ETFs

Bitcoin’s recent milestones, surpassing $73,000, have been accompanied by a remarkable surge in the value of spot Bitcoin ETFs, now outvaluing the largest gold ETF. This shift indicates a growing preference among retail investors for cryptocurrency-based investments.

7. A Glimmer of Hope in Inflation Data

A silver lining in the CPI report comes from the food sector. Food price inflation has decreased to just 1.0% year-over-year, the lowest since June 2021 and a significant drop from the 13.5% peak observed in August 2022.

8. American Workers’ Financial Recovery

After a prolonged period of negative real wage growth, American workers are finally seeing wages outpace inflation, a positive sign for ten consecutive months. This trend bodes well for the U.S. workforce's financial health.

9. Consumer Sector Showing Strain

While U.S. Retail Sales have increased by 0.8% over the last year, the real value, adjusted for inflation, reveals a 2.3% decline. Consumer Discretionary stocks also underperformed compared to the broader market, indicating potential consumer weaknesses.