Weekly Good Reads: 5-1-1
Treasuries, 2024 Trends and Outlook, Well-lived Life, Real Asset Class Returns, MACD
Welcome to Weekly Good Reads 5-1-1 by Marianne O, an investment practitioner and author of
about investing, economy and wellness ideas. Every week I include 5 links to relevant economic and investment, finance and wellness/idea pursuit as well as 1 important chart and 1 term to know. All the Weeklies are here and here is the index of charts and terms. You can easily subscribe to my newsletter by clicking below.👋 This year I will be sharing my interviews with female fund managers — not to be missed!! Subscribe to follow.
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Market and Data Comments
Will there be 6 interest rate cuts (about 140bp of rate cuts) in the US in 2024 as implied by the Fed Funds futures (chart above) —that is the question! Currently, the market has a 70% probability there will be a rate cut in March.
The first week of January saw a quick reversal of the optimism in stocks and bonds seen in December with US and European bond yields rising from 13bp to 17bp during the week and the world stock markets (MSCI All-Country) declining 1.6%. The reversal was clear in the S&P 500 defensive stock sectors (+1.3%) versus the cyclical sectors (-1.6%). Volatility in stocks (VIX) and bonds (MOVE) rose this week.
I mentioned in my last Weekly the stock market was pricing in too strong earnings growth in 2024 at the end of December so a retreat was not surprising.
Also, Bloomberg depicted the drivers of the US Treasury in a radar chart below showing the bond market moved ahead of its fundamentals in December (negative bands are market negative). Also, according to Fed Governor Barkin, committee members forecast anywhere from zero to 6 rate cuts this year (highly divided).
Strength however was seen in the US Dollar and Bitcoin, the latter buoyed by the expectation of the first spot Bitcoin ETF approval by the SEC likely next week (article below). Bitwise/VettaFi revealed 88% of the investment advisors surveyed (Q4 2023) interested in purchasing bitcoins are waiting until after a spot bitcoin ETF is approved while most of the advisors’ clients already hold crypto in outside accounts.
Despite the headline US payrolls rising 216,000 in December (downward revisions in August to October), the unemployment rate holding steady at 3.7%, and hourly wage growth rising 0.4% in December (+4.1% yoy), job openings and quit rates as well as the ISM services employment subindex fell, indicating slowing in the labour market since late 2023.
In both Europe and China, economic activities (measured by PMIs) and inflation were falling further (China in deflation since Nov 2023), and interest rate cuts are likely starting with China in January, probably followed by Europe.
Next week Taiwan’s presidential election will determine its foreign policy, national security and defence, and its relationship with China for the next 4 years (good background story here.) The President hopeful Lai Ching-te of the ruling DPP Party has asserted to maintain the status quo with no need to declare Taiwan’s independence (supported by 44% of citizens’ votes of the same) while President Xi in his recent Economic remarks did not mention any timeframe for reunifying Taiwan.
Next week, we will monitor the US December CPI on Thursday and PPI on Friday, Japan’s CPI on Monday, China’s December exports, CPI and PPI on Friday as well as the Taiwan Presidential Election on Saturday.
Economy and Investments (Links):
Ruchir Sharma: top 10 trends for 2024 (FT - The Big Read, Global Economy or click here)
U.S. Spot Bitcoin ETFs Could Win Approval Next Week after Last-minute Application Updates (Reuters)
Fed Meeting Minutes Show Division on Interest Rate Path (Investopedia)
+ 2024 Outlook: Rate Cuts and the Influencer Apocalypse (
’ s Substack)Finance/Wealth (Link):
The Easiest Money That Investors Ignore (Best Interest)
What’s the problem with liquidity? The mere ability to buy or sell an asset tempts investors to do so at the worst possible times.~Best Interest
+ Stocks Are Expensive: That Doesn’t Mean You Should Stay Away (Finimize)
According to the writer, 3 or more Yes will point you to a Bull while 3 or more No to the questions point you to a Bear.
Question 1: Do you think inflation will slowly creep lower from here?
Question 2: Do you think economies will avoid a recession, even if there’s an extended period of lower-than-normal growth?
Question 3: Do you think AI will accelerate company cost-cutting and boost economic productivity in the years to come?
Question 4: Do you think economies can cope with higher interest rates, and, do you think that maybe, in fact, higher rates might actually be a good thing?
Question 5: Do you think US companies will see profit growth over the next few years at least in line with their long-term average of 7%?~Finimize
Wellness/Idea (Link):
The New Old Age: What a new life stage can teach the rest of us about how to find meaning and purpose—before it’s too late (The Atlantic via Archive.com)
If career logic helps you conquer the world, gift logic helps you serve it. If career logic focuses on “how” questions—how to climb the career ladder, how to get things done efficiently—gift logic focuses on “why” questions, such as why are we here, and what good should we ultimately serve? If career logic is about building up the ego, gift logic is about relinquishing it and putting others first.
A well-lived life, at any stage, is lived within the tension between these two logics. The problem is that we have managed to build a world in which utilitarian logic massively eclipses moral logic. The brutal meritocracy has become such an all-embracing cosmos, many of us have trouble thinking outside of it. From an early age, the pressure is always on to win gold stars, to advance, optimize, impress. That endless quest for success can come at the expense of true learning. Many of the students I’ve taught over the years don’t have time for intellectual curiosity or spiritual growth—a condition that only worsens through adulthood as their obligations proliferate.~Atlantic
+ How to Be Happy Growing Older (The Atlantic)
+ Microsoft gives AI a place on the Windows keyboard (Axios)
One Chart You Should Not Miss: Real Asset Class Returns
Popularized by Callan in 1999, the periodic table of investment returns ranks major asset classes annual returns from best to worst. Over the years, it has shown up in different versions by investment houses such as the ones by JP Morgan and Morgan Stanley below.
The colour of the box shows a particular asset class: for example, a US large cap is denoted in green. The up-and-down movements of an asset class mean no one asset class dominates investment returns every year, pointing to the usefulness of a balanced and diversified portfolio.
Morgan Stanley research put out the ranked real returns every year in the past 10 years. The green ones (returns in USD) beat inflation proxied by US headline inflation and the red trails inflation.
One Term To Know: Moving Average Convergence/Divergence (MACD)
A popular trend-following momentum (technical) indicator traders like to use is the MACD, which is calculated by subtracting the long-term exponentially-weighted moving average (26-period EMA) from the shorter-term EMA (12-period EMA), which forms the MACD line or MACD baseline.
A period is usually measured in days. The signal line is a 9-period EMA of the MACD line. MACD places more weight on more recent data (hence exponentially-weighted).
When the MACD line crosses above the signal line, it signals a bullish momentum and vice versa. The distance between the 2 EMAs shows the strength of that momentum.
It looks complicated because of the statistical terms involved but it reveals not only the momentum of a security/index but the underlying strength of that momentum and if there is any change in the momentum.
Definition of MACD (baseline) =12-Period EMA − 26-Period EMA
Divergence happens when the underlying price trends form say two falling lows while the MACD forms two rising lows. This is called a bullish confirmation especially when the long-term trend remains positive
When two rising highs in price happen at the same time as two falling MACD highs, a bearish divergence takes place.
The MACD is not a leading but a lagging indicator as it is based on historical prices (moving averages), so traders combine MACD with other directional indicators to confirm trends.
To know how practitioners use these momentum indicators in combination with macro factors, be sure to follow
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