Cela's Weekly Insights - March 31, 2024

The first quarter of 2024 took us on quite a ride in the capital markets. We observed mixed signals concerning the economy, both in Europe and the United States. However, the stock market consistently defied gravity. The Euro Stoxx 50 concluded its tenth consecutive week of positive performance, and the S&P 500 brought us joy 21 times in the first quarter by reaching an impressive 21 all-time highs. In such an environment, it's natural for this performance to attract significant attention from both bulls and bears, who may tend to generalize. However, it's important to note that generalizing and oversimplifying in the capital markets often leads to poor decisions.

Is It Different This Time, Or Not?

When faced with challenging situations, we tend to look to the past for guidance about the future. Yet, steering your car by only looking at the rearview mirror, to use this analogy, is universally acknowledged as unwise. While there are some parallels to the mid-90s, when the Fed, under Alan Greenspan, doubled interest rates from 3% to 6% between 1994 and 1995 to prevent an overheating economy from inflating prices, the political landscape was quite different. Indeed, Democratic President Bill Clinton was campaigning for his second term with the elections set for November 7, 1995, and he managed the country's debt deficit commendably.

Today, the U.S. government continues to increase its budget deficit, a trend that persists regardless of whether a Republican or Democrat is president. Moreover, the global interconnectedness has significantly increased over the past 30 years, making a profound understanding of the global macro perspective essential for future guidance.

The Winners and Losers of the 1st Quarter

Shifting our focus back to the stock market and the performance of different indexes in the first quarter, Bitcoin (USD) emerged as the standout performer among the indexes and asset classes I monitor, with a gain of over 67%. After a prolonged period of stagnation, Bitcoin not only recovered but also set new all-time highs this quarter. Nevertheless, my personal highlight of this quarter is the Euro Stoxx 50, the leading European index, which, thanks to the GRANOLAS stocks renowned for their quality and low valuation, reached new highs. The Euro Stoxx 50 ended the first quarter of 2024 up by 12.42%, outperforming both the S&P 500 and the NASDAQ 100 – a rare sight indeed. On the other hand, China remains the clear loser, struggling with multiple issues, including real estate and deflationary pressures.

According to the latest Fund Manager Survey, 'Short China Equities' remains the second most crowded trade, explaining the Hang Seng's decline of -2.97% in the first quarter of 2024.

Rising Oil Prices Raise Concerns for Inflation

Another asset class we closely monitored this quarter, especially in light of inflation projections, is oil. The producer price index for February came in higher than analysts expected, with rising energy prices playing a crucial role. In early February, with Brent Crude Oil trading in the mid 70s (USD), JPMorgan analysts anticipated oil prices would climb to the high 80s (USD) by May. This expectation was met sooner than anticipated.

Moreover, commodity strategists at JPMorgan recently estimated that global oil production would grow at a low single-digit percentage throughout 2024, while demand is expected to increase slightly faster. They predict oil could reach $100 per barrel by September. Contributing factors include Russia's decision to cut oil production and potential escalations in the Middle East, as evidenced by Israel's recent attacks on Hezbollah in Syria and Lebanon, increasing the risk of retaliation. Such military unrest historically disrupts oil flow to the region. Additionally, OPEC+ has maintained earlier production cuts, further supporting high oil prices. We will continue to monitor these developments closely, as they significantly influence inflation and, consequently, Central Bank policies.

Last Week's Market Performance: A Global Overview

Cela’s Weekly Insights Indicator

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 ??