[Market Updates] 2024 First Half

Now that we’re halfway through 2024, let us look at three key market developments that you should pay attention to for the first half of the year.

United States: From 3 Rate Cuts To 1

During the meeting in June, Federal Reserve officials had dialled back their expectations for the number of rate cuts that will be effected this year. The Federal Reserve has signalled its intention to proceed with a single rate cut instead of the previous three rate cuts. However, Powell had signalled that the doors are open to two cuts depending on the inflation data.

As of where we stand today, the Fed is grappling with uncertainty over the impact that the tight monetary policy is having on the economy. Job growth and consumer spending have been surprisingly resilient despite high borrowing costs. Inflation, meanwhile, has cooled substantially following a sharp acceleration during the pandemic, though it remains above the Fed’s 2% target.

While the reduction in rate cuts does not come as a surprise to me, what I am surprised by is the reaction of the market to this piece of news. Despite the Wall Street axion of: “Never fight the Fed”, the market completely disregarded the stance of the Fed as more cash continued to pour into the market pushing prices even higher.

The market is simply not sold on the prospects of inflation and labour market readouts not giving the Fed the room for multiple cuts this year and that stubbornness is keeping intact the current environment that benefits risk assets which is why the Western markets are seen to be consistently breaching new highs.

Why does this matter: Given that the US and Global markets had pumped up by around 18% for the first half of the year despite a missed expectation on rate cuts, it does make me wonder about what would happen when the market breaks as expectations continue to detract from reality.

That said, given that we are investing via dollar-cost-averaging with a long investment duration, such short-term volatility is inconsequential in the long run. While we may be spooked by market movements (as we did back in 2020 and 2022), I think long-term investors should not be too worried about what's going on with the price actions.

United States: Trump 2024

With the completion of the first presidential debate that was held on 27 June 2024, the odds of Trump winning the upcoming 2024 presidential election had improved while Biden’s odds had plummeted as a result of Biden’s incoherent performances during the debate.

Apart from the sensational memes that the world got to enjoy, the performances also provided a reality check to democrats in the United States as to Biden’s current mental condition and his ability to lead the country for four more years.

Even within the Democrat Party, there has been a lot of discussion over a potential replacement for Joe Bide. While nothing is confirmed at the time of writing, a replacement is likely going to happen as it is unlikely that the Democrat Party can win the election if Joe Biden continues to run for president.

Why does this matter:

In a likely event where Trump is re-elected, the trade policies that he will pass will likely be even more protectionistic than what we’ve seen in his previous term. In the short run, such protectionist policies will be beneficial to the United States markets. In the long run, however, there will likely be repercussions on the competitiveness of the United States’s economy.

On the other hand, the United States’ existing trade partners would feel the brunt of the protectionist policies as global trade between the United States and the rest of the world experiences a slowdown. This is detrimental especially to Emerging Markets and Asia in the short run but potentially beneficial in the long run as there is a silver lining to the protectionistic policies.

All that being said, we’re still months away from the election and with any election, the outcome is as uncertain as the market itself and any efforts to try to predict the election outcome are as futile as trying to time the market.

BRICS+ Further Expansion

While still in their infancy stages, the expansion of BRICS+ seemed to be accelerating with the formal inclusion of Saudi Arabia, Iran, Egypt, Ethiopia and the UAE earlier this year.

Apart from the inclusion of energy powerhouses in the Middle East, several countries within South East Asia – namely Malaysia and Thailand had also formally expressed their intention to join BRICS+. Even countries like Indonesia and Vietnam have indirectly expressed their interest in the bloc though no formal request has been made just yet.

With a further expansion of the bloc, it is interesting to see what developments could come out of this unusual alliance as each of these countries brings to the table different competitive advantages ranging from natural resources, financial, infrastructure and manufacturing capabilities, which if played out well, will be a major plus for all players in the bloc itself.

Why does this matter: The implication of a stronger BRICS+ alliance comes in two-fold.

Firstly, as ties between the members of the bloc warm up, we may experience a higher level of trade volume between members of the bloc which will boost economic and business activity thereby accelerating the growth of the developing markets. This is good news for Emerging market investors.

Secondly, an established BRICS+ alliance would also cause the demand for USD to decrease as international trade and financing is done through the local or a potential common BRICS currency. Reduced demand for USD will result in negative implications for the United States as the consequences of their poor fiscal mismanagement will now be absorbed domestically instead of being exported out.

While I find the creation and adoption of a common BRICS currency unlikely, the former option of trading directly using the respective local currency instead of USD is likely going to materialize given that one of the main motivations of the bloc’s expansion is to reduce the reliance of USD. This is bad news for US investors.

That being said, as I’ve mentioned in previous market updates, it is unlikely that we will see the benefits of the formation of BRICS+ in the short run as it is easier said than done to set aside their political and identity differences - especially on the world stage. In the long run, however, only time will tell.

Long Story Short

While the first half of the year has been exceptionally rewarding to all risky asset investors, much of the headwinds revolving around economic slowdowns and global conflict have yet to be fully resolved.

Further price volatility is to be expected in the markets in the second half of 2024 but for investors who are mainly dollar-cost-averaging, a higher volatility is more beneficial to us in the long run. Therefore, apart from the short-term emotional roller coaster that we’ll be sitting through, I think there's no reason for investors to panic and overreact to the price movements.

That’s all I have for the 1st Half of 2024 Market Updates, if you have any questions or concerns revolving around your investments, do reach out to me directly.

On a side note, I’ve finally completed the eBook: “Retire With REITs” that I’ve been working on over the last 1 year. If you are interested in learning more about REITs investing, you can grab a copy through the website or just PM me directly!