October 2024
Dear Friends, Dear Investors,
In September, most major central banks lowered their reference rates, be it in Europe (with both the European Central Bank and the Swiss National Bank) or in America (with the Federal Reserve). Despite much handwringing about how such moves can be negative for stock markets, since lowering rates means the economy is slowing, most stock indices ended the month higher.
This is because, as we have written before, this is not a cycle like 2000 or 2008, when something broke down badly, but rather the end of the inflation cycle triggered mostly by supply issues following the Covid crisis 0f 2020. Since inflation is on the wane, there are no reasons to keep interest rates at high levels and, so, no need to see these lower rates as the harbinger of economic doom.
The US economy, in particular, seems to be staying in fine shape, in sharp contrast to the German economy, which has hovered around recession levels for the past two years (and one reason why we have steered clear of anything Germany-related). In China, the powers that be seem to have realized that their 5% growth target for 2024 was in clear and present danger of not being reached and have unleashed quite a bit of monetary and fiscal power, triggering a massive rally in Chinese equities. This will undoubtedly help the Chinese economy, at the margin, but the real estate bust is so massive and the shrinking population so disinflationary that years of disappointing economic growth are a foregone conclusion.
Many investors are now quite fearful for the rest of the year, as the combination of economic and geopolitical fears trigger doubts about the continuation of the bull market. Truth be told, markets have been more or less flat since May-June and some interpret this as a sign of a massive top. But, in order to have a correction, you need stocks making new lows, and that is simply not happening.
We believe this is a month-long consolidation in a bull market and that stocks should resume their upside course until the end of the year.
Best regards,
Your CaridaB Group Team
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