The US 10Y treasury yield went through a wild ride this year while ending almost where it started, swinging between 3.25-5%. Markets are pricing 150bps of cuts in the coming year, expecting the first cut will be by March.
Job Market: In December, employment number increased by 170k, indicating healthy hiring. However, the initial jobless claims jumped in the week before Christmas, while still remaining at the level that is consistent with the resilient labor market.
Mortgage: US mortgage rates continue to drop this week. Markets are expecting further drop in the coming year, given the forecast of 3 rate cuts in 2024 by the Fed. There will be downward pressure on mortgage rates if it is realized.
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Bank of America: Equities are led by a very small group of stocks in 2023. We expect it to broaden out next year, including non-tech sectors, smaller-cap stocks and emerging markets stocks.
Blackrock: S&P500 hit new 2023 high. We remain underweight in developed market equities but the AI theme could potentially drive us closer to a neutral view.
Bank of America: Bonds could potentially make the portfolio more diversified and less volatile, as we expect rates to stabilize. Adding more cash to take advantage of the recent high yields is no longer a good idea, as it will not provide long-term returns and the best of it would be just keeping pace with inflation.
Blackrock: The market pricing of rate cuts in 2024 looks overdone. We expect higher interest rates as central banks were pushing back against the market expectations for rate cuts in the previous meeting.
Goldman Sachs: We expect the economy in the US will outperform the forecast in 2024. The short-term potential growth rate is at around 2% currently, driven by the above-trend immigration that leads to faster labor growth.
Bank of America: Voters are going to the polls in many countries including the European Union (EU) and the US. It would add uncertainty in the coming year, especially since the result in the EU will be critical which may lead to policy changes like decarbonization and antitrust matters that will be challenging for US companies.
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