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- This Week in Financial Markets: 12.23.2023
This Week in Financial Markets: The Top 5
1. Santa Rally: Why it Will Keep Going
The Santa rally is on! We must remember, a large reason why markets tend to be strong in this window is due to the LACK of data. Put simply, there are constant bullish flows entering the market. Whether it is 401Ks increasing on a monthly basis, passive ETFs buying new underlying holdings, or even derivative market makers buying back equity hedges (as retail traders’ long-puts go towards zero); bullish flows dominate in periods of low volatility and low volume. Until volume picks back up and important economic data or earnings start to print, dips in the market are likely to be quickly bought.
[See Wednesday’s large drop that has already been erased.]
2. Commodities Under-Owned Heading into 2024
As we near 2024, investors are the most underweight commodities relative to bonds since March 2009. This comes just as the Fed is about to cut rates and the PBOC is injecting records amount of liquidity. There are many reasons (de-globalization, labor wage demands, under-supplied commodities, etc.) that we are likely in a structural inflationary era and investors are positioning completely the wrong way.
3. Economists are ALL Pessimistic
Over a dozen Wall Street economists and not one sees a re-acceleration in the economy…
4. China Regulatory Crackdowns Continue
China's largest public company, Tencent, lost over $50B in market cap in just a few minutes on Friday. This came after the Government announced guidelines aimed to reduce "excessive gaming". It was the largest one-day drop for the company since 2008.
This relatively small example shows why so many investors have fled Chinese risk-assets over the past few years and why there has been meaningful underperformance relative to US equities. The consensus view has become to avoid the ‘political risk’ and to gain similar exposure through different emerging market equities.