Stocks and bonds do not react well to uncertainty, a function of the economic and geopolitical landscapes. In 2023, rising U.S. interest rates, global inflation, economic weakness in China, and fears of a U.S. recession created uncertain market conditions throughout most of the year. Meanwhile, the ongoing war in Ukraine, the bifurcation of the world’s nuclear powers, and another war breaking out in the Middle East in October 2023 only exacerbated fears across the global financial landscape.
However, stocks and bonds rallied from the October 2023 lows, and the trends in the equity and debt markets turned decidedly bullish despite the uncertain background. While the markets have moved into 2024 in bullish trends, the uncertainty remains a clear and present danger to the current path of least resistance of prices.
The economic and geopolitical landscapes could create plenty of bumpy market periods across all asset classes. Some pundits and “market experts” have warned that markets could decline substantially, creating a financial catastrophe. Successful traders and investors with their fingers on the pulse of markets know that trends, not “market experts” and pundits, will tell them all they need to know about the path of least resistance of markets over the coming days, weeks, and months.
Dire warnings that create doubt, shock, and attract attention
- Debt: The United States’ national debt has reached over $34 trillion. Funding the debt at a 5.375% Fed Funds rate is $1.8 trillion annually. The debt will rise even if spending and expenditures are equal. More spending than revenues will continue increasing the debt.
- Geopolitics: Wars in Ukraine and the Middle East are a clear and present danger for markets across all asset classes. The bifurcation of the world’s nuclear powers increases the potential for escalating conflicts.
- The U.S. election: The U.S. remains divided along political lines. The incumbent Presidential candidate has historically low approval ratings. The leading challenger in the polls faces over 90 felony charges.
The three reasons for dire warnings most market participants do not realize
- A BRICS Currency: The rising potential of a BRICS currency with gold backing to challenge the U.S. dollar and euro’s positions as the world’s reserve currencies could roil markets.
- Dependence on technology infrastructure: Modern warfare with any electromagnetic pulse could cause severe issues for the internet, the electric grid, water supplies, transportation, communication, and other infrastructure essentials. The U.S. and the world have become increasingly dependent on technology.
- Food and energy supplies: Trade barriers, sanctions, and escalating conflicts could impede the flow of crucial commodities worldwide. Food and energy supplies could become scarce in some regions and experience gluts in others, distorting global pricing dynamics.
The trends are your best friend- The current prices are the correct prices
- Stocks and bonds remain in mostly bullish trends since the October 2023 lows.
- Oil prices are stable above the U.S. government’s target range for replenishing the Strategic Petroleum Reserve.
- Gold has been in a bull market for a quarter of a century and remains firmly intact in early 2024 with the price above the $2,000 per ounce level.
- The current price of any asset is always the right price because it is the level where buyers and sellers meet in a transparent environment, the marketplace.
Allowing others to think for you is always a mistake- A golden rule for all market participants
- Some market pundits forecast price carnage in stocks and real estate in 2024.
- Extreme forecasting and calls for disasters scare market participants.
- Following trends does not involve selling tops or buying bottoms but protects capital and allows for significant capital growth in trending markets.
- The path of least resistance of prices is a function of fundamental wisdom and common sense.
A plan and discipline are the road to success
- Approach all trading or investment risk positions with a plan for risk and reward horizons.
- Stick to risk levels when markets move contrary to the original expectations.
- When markets move in the desired direction, adjust risk-reward levels to allow profits to flourish and protect capital and profits.
Always remember a risk position is long or short at the current market, not the execution market price.
Thanks for reading, and stay tuned for the next edition of the Tradier Rundown!