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Weekly Market Update (December 24, 2023)


HIGHLIGHTS

Equities were up again this week, supported by the pullback in 10Y treasury yield. Economic data continues to cool down. Core personal consumption expenditure price index (PCE) in November came in soft, and the gross domestic product (GDP) was revised lower due to the decline in consumption.


Disinflation: The progress of disinflation is faster than expected. Core inflation was reported at 1.3% last month while it was running at a sequential annualized pace of 2.2% in the previous 3 months. The expected timing of cuts is moved sooner.


China Gaming: China tech stocks dropped sharply on Friday after the local government in China had proposed to control the spending within the online gaming industry. Tencent, NetEase and Bilibili dropped 12.4%, 24.6% and 9.7% respectively.


BoJ: The Bank of Japan decided to keep its policy rates unchanged at the meeting this week. 10Y government bond yield remains at 0%. The headline CPI in Japan last month came in as expected, and the Governor stated that they have reached the target inflation levels. He also emphasized that the policy changes of Japan should not be impacted by the policy changes of other countries.

 
MARKETS

Nasdaq

14,992.97

+1.21%

S&P 500

4,754.63

+0.75%

Dow

37,385.97

+0.22%

10-Year

3.90%

-3bps

Brent

79.07

+2.84%

DXY

101.70

-0.87%

*Data as of market close. 5-day change ending on Friday.

 
VIEW FROM THE STREET

Equity

Morgan Stanley: The equal-weighted index is likely to outperform under the soft-landing scenario. Non-Manificent Seven or smaller cap stocks are recommended to be added to the portfolio, by either active selection or via equal-weighted index.


Goldman Sachs: Historically, S&P500 increased by 2% in 3 months and 11% in 12 months after the first rate cut. Markets are expecting aggressive cuts - 160bps in the coming year.

Fixed Income

Goldman Sachs: We believe the Fed will consider 25bps cuts at every meeting when the core inflation is below target, until the policy rates reach neutral at that time. It would be under the scenario that the decline in inflation is not temporary and the rebalance in the job market is not reversed.


Standard Chartered: The risk-to-reward balance of high-quality bonds is still attractive under different scenarios. In the base scenario, the downside in yields is modest, and we expect the 10Y treasury yield to drop below 3.5% in 6-12 months. However, in the risk scenario of a hard landing, it is a great hedge against the risk when the decline in yields is more than expected.


Economy

Barclays: The revised forecast indicated that the inflation decelerated to the 2% inflation target in Q3. The data of last month signaled that the easing of financial conditions recently is favorable to the housing market and consumer confidence.


UBS: Fed policy will remain the focus in the coming year. We expect 75bps of rate cuts in 2024 while the market is pricing 150bps. Our call is supported by the Fed officials' comments that markets are “a little bit ahead” and they were “confused a bit” by the market reaction.

 
KNOWLEDGE TRANSFER

ARM IPO

Here's all you need to know about the initial public offering of Arm Holdings.


 
DISCLOSURE

This newsletter is meant for informational purposes only and is not investment advice. Always consult a licensed investment professional before making important investment decisions. Advertising and sponsorship do not influence editorial content or decisions. Market Hedwig is not responsible for the promises made or the quality or reliability of the products or services offered in any advertisement.



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