Inflation came in hotter than expected this morning… And this made some pundits question the Fed’s commitment to cutting rates this year.
Meanwhile, a snafu surrounding the spot Bitcoin ETF – which I put on your radar last year – turned the SEC into the internet’s biggest laughingstock this week.
What to make of all of this? Over the next few days, I’m going to show you exactly what I see ahead for the markets in 2024.
Overall, this year will present more distortions and market volatility. And that means greater profit opportunities.
Perhaps the biggest factor is that we’ve entered an election year.
On top of that, we have a looming central bank pivot, lingering weakness in the banking sector, and accelerating use of all-digital currencies.
Geopolitical tensions show no sign of slowing. There is also rising competition in the global energy and commodities sectors. And that means dynamic national security issues, too.
Besides that, we’ll see greater implementation of artificial intelligence (AI).
All of this will create new distortions in the markets. So, in the coming days, I’m bringing you my market predictions for 2024. You’ll also get actionable recommendations on them.
Starting with the Federal Reserve…
The Fed Is in the Hot Seat
In December, the Fed confirmed what I’d been saying for months: Rate cuts are coming this year.
The Fed plans to cut rates by at least 0.75% this year. But I think we’ll get bigger cuts than that.
I predict that interest rates will fall by 1% in the U.S. and around the world.
Now, these cuts won’t happen right away.
The Fed needs its favorite inflation measure, core PCE, to fall under 2% first. And stay there for several months. (At the latest reading in November, it came in at 3.2%.)
That’s because Fed leaders don’t want to risk acting too early. If they cut rates and inflation spikes again, Chairman Powell and his crew will be exposed for their policy failures.
What’s most likely – and this is what I told Fox Business viewers live yesterday – is that the Fed will start cutting rates in the second half of the year.
Nomi live on Making Money with Charles Payne
Other central banks will follow suit. That’s because, as I detailed in my book Collusion, other central banks follow the Fed’s monetary policy.
We’ve seen the EU, UK, and other central banks move nearly lock-in-step with the Fed on key pivot events before.
This behavior was most prominent during both the financial crisis of 2008 and the pandemic periods.
In other words, during economic turmoil, central banks loosen policy to stimulate the flow of money between central banks and private banks.
And to combat inflation, they tighten policy or restrict the flow of money – as we saw from March 2022 to now.
And if history is a guide, that will have an impact on the markets – and certain sectors more than others…
What This Means for Your Money
With rate cuts coming, The Great Distortion remains alive. That’s the disconnect between the markets and the real economy.
It’s a wedge central banks created when they pushed cheaper money into the banking system – as much as $9 trillion since the financial crisis of 2008.
The good news is that markets like cheap money whenever and however it comes. And certain sectors benefit more than others when the Fed cuts rates.
Growth sectors that borrow more tend to rise due to lower borrowing costs. The tech sector is one of them.
That’s because technology companies rely on investing in research and development to grow and remain competitive. That’s why tech companies are also referred to as growth companies.
That upfront investment is cheaper when money is cheaper. And money is cheaper when interest rates are lower.
We have seen this story play out with stocks like Amazon, Apple, and Microsoft.
They all benefited relative to the overall market when the Fed was cutting rates in the post-financial crisis and pandemic period.
When the Fed cut rates in 2008, tech surged 44% in the months that followed.
The same happened when it cut rates in 2020. Tech went up 62% in the months that followed.
That compares with returns of –8.4% and 15%, respectively, for the overall market over the same periods.
I expect we’ll see something similar this time around.
To take advantage of this, buy the Invesco QQQ ETF (QQQ). It tracks the high-tech Nasdaq 100 Index.
It started the year strong, up 3% in the last five days alone. And the tech bull market will gain steam as the Fed begins cutting rates.
In the meantime, I suggest a measured approach to this particular investment. So for instance, if you have $1,000 to invest in QQQ, invest $250 each quarter.
This is what we call “dollar cost averaging.” That way, if there are price swings along the way, on average, you’ll still participate on the upside associated with rate cuts over the year.
Happy investing, and I’ll talk to you again soon.
Regards,
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Nomi Prins
Editor, Inside Wall Street with Nomi Prins