{"id":10205,"date":"2024-02-09T08:29:21","date_gmt":"2024-02-09T08:29:21","guid":{"rendered":"https:\/\/ibkrcampus.eu\/?p=10205"},"modified":"2024-02-09T10:32:22","modified_gmt":"2024-02-09T10:32:22","slug":"rising-noise-levels-in-markets-test-investors","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.eu\/campus\/traders-insight\/rising-noise-levels-in-markets-test-investors\/","title":{"rendered":"Rising noise levels in markets test investors"},"content":{"rendered":"\n

Originally posted, 7 Feb 2024, In a volatile year, staying invested will matter as events could turn quickly.<\/a><\/p>\n\n\n\n

Markets had a strong run in the final weeks of 2023 as investors rushed to price in a monetary policy pivot \u2014 in the form of anticipated rate cuts \u2014 from central banks. That has left valuations looking stretched across asset classes.<\/p>\n\n\n\n

But it is already clear that 2024 will bring many different events that will lead to a reshuffling of the pack of investment opportunities.<\/p>\n\n\n\n

Some of these events are already clearly marked on investors\u2019 calendars, such as the many elections taking place around the world this year \u2014 most notably the US presidential election on 5 November. Other events are less foreseeable, such as the attacks on shipping in the Red Sea and subsequent reaction from Western nations. We do not know how current epicentres of conflict will evolve; whether they will become more entrenched, for example, or draw in more participants.<\/p>\n\n\n\n

Overall, it makes for a complicated, and at times alarming, environment for investors to navigate.<\/p>\n\n\n\n

It\u2019s important to remember, though, that not all the events of 2024 will be significant from a financial market perspective. The US presidential election is clearly one where the stakes are high, but that\u2019s not the case for every poll.<\/p>\n\n\n\n

A practical approach for investors is to focus on understanding how divergent policies and events \u2014 financial and geopolitical \u2014 give rise to different risks and opportunities.<\/p>\n\n\n\n

Let\u2019s take fixed income. The global economy is still in slowdown, which should be a benign environment for bonds, but we need to keep an eye on the long end of the yield curve as the US election approaches. Thanks to the dollar\u2019s status as reserve currency, the US has had the luxury of being able to run a large deficit. But signs of fiscal profligacy from candidates may push the patience of markets too far and could result in higher volatility for longer-dated bonds.<\/p>\n\n\n\n

Europe, by contrast, has run more conservative fiscal policies. This is supportive of the bloc\u2019s bonds. Again, in emerging markets many countries have run orthodox monetary policies that now leave their debt markets in a good place. We are quite positive on local currency emerging market debt.<\/p>\n\n\n\n

Equities have not moved as quickly as bonds to incorporate rate cut expectations. While equity valuations have risen, they are not at extreme levels. Much of the move last year was concentrated in the so-called “Magnificent Seven” large-cap US stocks \u2014 and even these are underpinned by earnings.<\/p>\n\n\n\n

There may be scope for equities to move up further. This will be particularly relevant to investors currently holding cash. Our recent analysis, looking at data from 22 rate-cutting cycles stretching back to 1929, has found that the average return for US equities has been 11% in the 12 months following the first US rate cut.<\/p>\n\n\n\n