Fasten Your Seatbelts Tight for Fall 2024

Markets reflect the economic and geopolitical landscapes, which remain a hornet’s nest of potential problems in June 2024. As stocks, bonds, commodities, and other asset classes move into the summer, trading volumes will likely decline as market participants go on vacations. It has been a good year for stocks and bonds. With the second quarter ending soon, stocks have posted gains, bonds have recovered from the 2024 lows, and many commodity prices are higher.

The most significant price moves occur when surprises blindside market participants. The 2008 global financial crisis, the 2020 worldwide pandemic, and Russia’s 2022 invasion of Ukraine are stark examples of how shocks to the system cause elevated price variance.

The markets are poised for another surprise in mid-2024. Low liquidity during the summer could intensify price volatility if any unexpected events unfold over the coming weeks and months. When the summer ends, the markets will transition into another period of heightened sensitivity, with the November U.S. election promising to be one of the most contentious in history. Avoid complacency and buckle those seatbelts for a potentially wild ride in markets across all asset classes. Pay significant attention to risk-reward dynamics in all trading and investment risk positions. Enjoy the summer but keep your eyes wide open!

Economics remain uncertain

• The Fed’s inflation target remains 2%.
• The recent CPI and PPI data showed inflation is stable to falling, but it remains above the target.
• The Fed continues to hold the short-term Fed Funds Rate steady at a 5.375% midpoint.
• The U.S. debt continues to climb.
• China’s economy remains under pressure.
• Europe cut interest rates by 25 basis points at the latest ECB meeting.

Geopolitics- A hornet’s nest

• The war in Ukraine continues to rage.
• Relations between Washington and Moscow have deteriorated.
• The war in the Middle East threatens to escalate.
• Chinese reunification plans for Taiwan threaten conflict in Asia.
• Chinese relations with Washington have deteriorated.
• Iran and North Korea are emerging nuclear powers allied with China and Russia.

U.S. policy- Lots of uncertainty

• The U.S. electorate remains divided along political lines.
• Polls show the November 2024 Presidential Election is a toss-up.
• The first debate only exacerbated the divisions.
• The election will determine the path of U.S. foreign and domestic policies.

Passive investing can be a nightmare over the coming months

• The leading U.S. and European stock market indices have risen to all-time highs.
• Bonds have recovered from the lows as the market expects interest rate reductions.
• The VIX at under the 13 level signals complacency.
• The most significant volatility occurs when surprises shock markets as they did in 2008, 2020, and 2022.
• Passive investors tend to panic during volatile periods.

Trading can be optimal

• Increased volatility creates a paradise of trading opportunities.
• With their fingers on the pulse of volatile markets, nimble and flexible traders tend to optimize performance.
• Decreasing liquidity over the summer can exacerbate price variance when shocks occur.
• Trading instead of passive investing could be optimal over the coming months.

Given the uncertainty facing the global economic and geopolitical landscapes, it is an excellent time to fasten all seatbelts in markets. We could be heading into a period where trading instead of investing is the optimal approach to markets across all asset classes.

Thanks for reading, and stay tuned for the next edition of the Tradier Rundown!