U-optimize @U-optimize: "As the year draws to..."

Latvia

As the year draws to a close, investors are weighing two primary strategies: pursuing higher market gains amidst signs of slowing inflation and robust economic growth, or adopting a more conservative approach by increasing their investment in fixed-income assets. Currently, the bond market is showing appealing risk-adjusted returns of around 5.5% for a 2-3 year period. This could serve as a hedge against potential equity market downturns in the coming year. Additionally, recent trends in $GOLD and $OIL markets suggest a slowdown in economic growth over the next 3-6 months. This could impact market prices, particularly if the recent surge in global liquidity subsides by year-end. In such a scenario, favoring investment-grade credit with short durations might enhance portfolio returns. In terms of tactical portfolio allocation, our recent shift away from short positions coincided with a market surge. We now see an opportunity to rebalance the portfolio to a more even mix of long and short positions, preparing for potential market corrections or consolidation. Even if the market continues to rise, driven by investor momentum, the risk-adjusted returns are not overly attractive given the current risk premiums and signs of slowing growth. Moreover, market performance concentrated in a small number of stocks is often a sign of market instability, typically leading to increased volatility. This trend may persist for a while, but it's important to remain vigilant for new challenges, whether from a reduction in market liquidity or a rise in unemployment figures. As we consider the broader market outlook for 2024, a key takeaway is the expectation of persistently higher interest rates, which is a significant shift from the trends seen since the 2008 financial crisis. This new environment of will likely reshape the financial landscape, impacting everything from borrowing habits to asset class returns. Investors should anticipate a more discerning allocation of capital and a recalibration of return expectations across various asset classes. The U.S. economy, having displayed notable resilience in 2023, is nonetheless poised for a modest downturn in 2024. This adjustment is deemed necessary to bring inflation back to target levels. The path to this outcome may not be smooth, and investors should be prepared for potential volatility during this transitional phase.

2 Mentioned

GOLD

OIL