December 29, 2023

 Commentary

Market Trading Update

On January 3, 2022 the S&P 500 index closed at a record high of 4796.56. Nearly two years later the market is closing in on that milestone with the market closing yesterday just 15 points away. With just two trading days left in the year, a new all-time closing high seems inevitable. The question then become what happens next?

The composite index of retail and institutional sentiment as compared to the volatility index, is at a reading higher than we saw in July when the market peaked. The subsequent correction clipped 10% off the markets. Will this time be different? While high sentiment readings do not necessarily mean the market will correct by 10%, it does suggest that at least a short-term correction to reduce the overbought condition is likely.

With momentum and sentiment firmly intact, there seems little to keep the market from rising for now. However, we will likely see some of the froth come off in January. Source: Lance Roberts

Credit Spreads Hover Near 18-Month Lows
The 10-year Treasury yield has fallen over 100 basis points since October 31st. Credit spreads have fallen alongside yields as investors cozy up to decreasing default risk. The catch is that credit spreads have been contracting most of the year while benchmark yields were rising. As shown below, both the investment grade and high-yield bond index credit spreads are hovering near 18-month lows. However, both the 5- and 10-year yields are still 100+ basis points above their respective levels the last time credit spreads were this low.

With credit spreads near historic lows and yields still somewhat elevated, there’s a case for adjusting bond exposure to favor treasuries rather than corporate bonds. There’s little to suggest that credit spreads should tighten further than they have over the past ten years, but there’s an argument to make that they are too tight for the current credit environment. Thus, avoiding exposure to changing credit spreads may pay off until some sort of normalization takes place. Source: Lance Roberts

World shares are mixed following slight gains on Wall Street 

Global markets have shown a mixed pattern, with European shares opening lower despite significant gains in Asian markets. U.S. futures followed a similar trajectory, with notable performances including Germany's DAX and Paris's CAC 40 both opening 0.1% lower while Britain’s FTSE 100 declined by two points. U.S. markets showed slight gains, the S&P 500 rose 0.1% for the day and is up 24% for the year. The Dow Jones Industrial Average climbed 0.3%, and the Nasdaq Composite rose 0.2%, boasting a 44% surge this year. Investors remain hopeful for the economy to avoid recession, along with the expectation that the Fed may implement rate cuts in the new year. These conclusions are based on recent data as well as the Federal Reserve's consistent policy since its July meeting. Source: KXAN.com

Traders that fueled stock-market rally are now nearly tapped out, Goldman says 
Computerized trading firms, known as commodity trading advisors (CTAs), are near their limits after significantly boosting U.S. stocks in November and December, says a Goldman Sachs Group report. They currently hold around $40 billion in long exposure to the S&P 500 with nearly $150 billion in exposure to global equities. This growing exposure hints that these traders may have hit their limit, even if global shares keep soaring. While CTAs have been instrumental in influencing equity, fixed income, and commodity markets, there are other types of traders that could push the market either way. However, this assertion from Goldman Sachs only offers a partial view into the overall trader space. Source: MarketWatch

2.2mb/d 2024 growth expectations, key to shaping oil market – OPEC 
OPEC expects economic growth of 2.2 million barrels per day in 2024 to significantly influence global oil demand and supply. As per its most recent December report, global oil demand is predicted to rise by 2.2 mb/d in 2024, with non-OECD demand, led by China and the Middle East, potentially increasing by 2.0 mb/d, and OECD demand by 0.3 mb/d. Expectations for non-OPEC supply growth are at 1.8 mb/d in 2023, with the US set to provide about 70% of this increase, and an expected increase of 1.4 mb/d in 2024. OPEC has underscored the importance of all energy sectors receiving investments, as they estimate a need for $12.1 trillion investments to meet growing long-term oil demand. Source: Punch Newspapers

Big rise in gold price 
Gold prices have seen a noticeable increase in the world market. According to the All Pakistan Gems and Jewelers Association, there has been a significant hike in the price of gold per tola, with an increase of 2200 rupees, making the current price 2 lakh 22 thousand 800 rupees. Similarly, the price of 10 grams of gold has escalated by Rs 1886, adjusting the new price to Rs 1 lakh 91 thousand 15. The world market sees this increase as well, with gold prices at 2085 dollars per ounce, which is an increase of 20 dollars. For US traders, these surging prices might signal a favorable time for trading in gold assets. Notably, the upward trend in gold prices seems to be continuing, as the previous day also saw an increase of 1000 rupees in the price of gold per tola. Source: Daily The Patriot

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