Cela's Weekly Insights - February 18, 2024

Welcome back to this week's edition of "Cela's Weekly Insights," where we break down the ups and downs of the financial markets. As we close another week, the S&P 500 and Nasdaq 100 have seen their five-week winning streaks come to an end, marking a moment of reflection for investors.

Inflation Throws a Wrench in Market Dynamics

The market's momentum took a hit last Tuesday following revelations that current inflation rates exceed expectations. A subsequent drop was observed on Friday morning after a report on the producer price index (PPI) indicated persistent inflationary pressures, with PPI climbing 0.3% in January from December - surpassing the anticipated 0.1% rise. The core PPI, excluding food and energy, escalated by 0.5%, marking the most significant monthly increase since last July and exceeding the 0.1% forecast.

Anticipations of Rate Reductions Adjusted

The inflation figures led to a sharp increase in 2-year Treasury yields, as optimism for Fed rate cuts dropped. Initially, the market had predicted about five rate cuts starting in May. Now, expectations have moderated to approximately four cuts, possibly commencing in June, with a 25 basis point reduction expected, followed by further reductions in July, November, and December. This would lower rates from 5.5% to 4.5%. However, with rising geopolitical tensions and a spike in oil prices, it's wise to approach these forecasts cautiously.

Fund Managers' Bullish Outlook

Last Tuesday also brought us the latest insights from Bank of America and Merrill Lynch's fund manager surveys, revealing a strikingly bullish sentiment - the most optimistic in two years. Cash holdings have decreased from 4.8% to 4.2%, indicating a significant shift. For the first time since April 2022, the powerhouses managing substantial funds are not preparing for a global recession.

Investor confidence is notably strong in US stocks, with allocations at their peak since November 2021, particularly favoring the tech sector. However, the Bank of America Bull & Bear Indicator suggests caution at 6.8, indicating that while optimism is on the rise, aggressive positioning may pose risks.

On a macroeconomic level, there's a newfound optimism regarding global growth, the strongest since February 2022. A "soft landing" is the predominant expectation for the economy this year, with most investors discounting the possibility of a recession.

In terms of asset allocation, there's a noticeable preference for global equities, especially US stocks and the tech sector, marking a shift towards growth over value. Interestingly, there's a move away from cash, commodities, emerging markets, and energy stocks.

Last Week's Market Performance: A Global Overview

Cela’s Weekly Insights Indicator

Now, dear readers, let's move on to a segment that I would like to reintroduce in my newsletter: the outcomes of my Saturday polls concerning the performance of the S&P 500. Once again, I want to emphasize that these weekly polls aim to gauge current sentiment by posing a straightforward question with only two possible responses.

As mentioned earlier, the S&P 500 ended its 5-week winning streak last week, finishing 42 basis points in the red. However, 84% of the 82 participants anticipated an upward trend. This 84% reflects a very bullish sentiment. Regarding the results for the previous year, 2023, more information is forthcoming. I’ll keep you informed here in my newsletter.

That's all for today, folks. For more insights, make sure to join me every weekday morning on my Podcast "Capital Markets Quickie." Tomorrow morning, we'll discuss the most important events in the week ahead.

Cheerio!

Endrit Cela The Investment Fella - #ECB #mm #411 ??

Disclaimer for Cela's Weekly Insights:

Cela's Weekly Insights serves solely as an informational resource on the capital markets and reflects only my personal views, based on my independent research. It does not represent the opinions of any companies or organizations I may be associated with. Please note that this newsletter is not intended to provide financial advice. For financial decisions, I strongly recommend consulting with a professional financial advisor. The information provided here is for general informational purposes only.