At its final meeting of 2023 last week, the Fed confirmed that rate cuts are coming next year.
If you’re a longtime reader, you didn’t need Fed chief Jerome Powell to tell you that. We’ve been predicting this for more than a year.
It’s what I called Stage 3 of the Fed’s pivot. Like in the November 11, 2022 Inside Wall Street, when I wrote to you…
By Stage 3, there will be negative economic ramifications building up, due to the higher cost of debt for the average citizen (for mortgages, auto, personal, and small business loans). At that point, the Fed will begin cutting rates. I expect Stage 3 to happen by 2024.
That means that what others just found out, you have already known.
What does it mean looking ahead? In this essay, I’ll give you three market predictions for 2024.
But first, let’s take a step back so we can understand the bigger picture.
Powell’s Ego
As we expected, the Fed didn’t raise or lower rates at its meeting last week. Rates are still at 5.5%, a 22-year high.
The reason for the Fed’s decision comes down to inflation. Overall, inflation figures have dropped. The annual inflation rate is down from a high of 9.1% in June 2022 to 3.2% today.
Prices are still rising, and that’s why you’re still feeling the pinch. But inflation is rising more slowly now. That’s what that 3.2% number means.
However, my analysis shows that this has little to do with the Fed, despite what the mainstream media has been saying.
What’s really behind the slowdown in inflation is that supply chains have normalized for now.
But as I keep saying, things can change with the rise of any major global conflict or disaster. And the Fed cannot print energy or gold. (More on this in a moment.)
That’s why Fed chair Jay Powell hedged his remarks. He said that declaring victory over inflation would be premature.
He also said it’s really good to see the progress on inflation. So, he patted the Fed on the back there.
And that’s because the Fed’s goal is still to get inflation back down to 2%. That’s been central bankers’ arbitrary inflation target for years.
Now, there was an important nugget hidden in the Q&A portion of Powell’s address. And that is when he said that core PCE is moving closer to that 2% target.
For context, core PCE is the Fed’s favorite inflation indicator. It measures inflation minus food and fuel. It’s ironic, considering those are two things people rely on most. But that’s the Fed for you.
Powell also said the Fed is likely at or near peak rate hikes for this cycle. This was the second most dovish comment I’ve heard from Powell since the Fed first hiked rates in March 2022. (Dovish, meaning in favor of low interest rates.)
But there was one even more dovish item that emerged. Powell revealed that the Fed might cut rates before core PCE reaches 2%.
Based on my analysis, that could come by the early third quarter of 2024. And that means we could have three rate cuts by the 2024 election.
Three Market Predictions for 2024
Over on Wall Street, the Dow shot up more than 500 points in response.
Ten-year Treasury yields dropped below 4%. Gold jumped to over $2,000. And crude oil rose to its highest level in five months.
Now, here’s my concern. The Fed says it’s making progress, and so the markets are reacting positively.
But that doesn’t mean the markets are going to be smooth from here on out. There’s going to be chop in the financial system still. And there are a few reasons why.
Banks are still weak, especially regional ones. That can impact the economy and, more importantly, your portfolio.
Inflation is also not going away overnight. My outlook for 2024 shows more inflation from two key places besides housing and rent.
One, food prices could rise because of higher costs of inputs like fertilizers and labor. And two, energy prices could rise as geopolitical tensions remain. That could impact supply and distribution chains.
But here’s the good news. Some sectors will benefit massively from rate cuts next year.
Those sectors are 1) technology and AI, 2) energy, and 3) metals and mining. The latter includes the precious, industrial, and rare earth metals that drive tech, AI, and energy.
And that brings me to my predictions for next year.
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Prediction No. 1: Uranium prices will continue their rise and hit $100 per pound in 2024.
I see growth in the energy space in general in 2024. But especially in nuclear energy and uranium, on lower cost of funds.
What I mean by that is that smaller companies – like many nuclear and uranium ones – rely on cheap financing in order to fund fast expansion plans. That’s something they haven’t had, with interest rates at a two-decade high.
But as the Fed starts cutting rates next year, that will mean more favorable lending terms. And that should lift the stock price of companies that need that lending to grow their operations.
Within that, firms that optimize their business with AI will outperform. That’s because AI can help lower costs while expanding production.
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Prediction No. 2: Gold will hit $3,000 per ounce in 2024.
As the Fed moves to rate cuts, hard assets that operate outside of Fed policies will rally. That’s because these assets act as risk and inflation hedges. And they tend to perform well when the dollar drops.
That’s why it makes sense to own assets that hold their value through chop. That includes gold and that other mined asset – Bitcoin. (More on Bitcoin in a moment.)
In the aftermath of the 2008 financial crisis, the dollar weakened. The best measure of that is the U.S. Dollar Index (DXY). It tracks the dollar against a basket of foreign currencies.
Between September 2008 and October 2011, the DXY fell from 84.4 to 76. At the same time, gold soared 170%. The S&P 500 returned 6.9%.
Gold is already up 13% this year, but I see more upside ahead. I also expect more upside in gold miners for the reasons above.
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Prediction No. 3: Bitcoin will hit $100,000 by late 2024.
I’ve been pounding the table on Bitcoin since we launched Inside Wall Street in December 2021 – and even longer before that.
Today, Bitcoin trades at $41,200. It’s up 143% this year alone, but its next rally is just getting started.
That’s because, like gold, Bitcoin offers a hedge from any drop in the U.S. dollar that occurs when rates go down.
We saw that in 2017 when the U.S. dollar weakened. The DXY fell from 101 to 89. Bitcoin went up 2,230%, while the stock market returned 14%.
And, as I wrote in my 2018 book Collusion, Bitcoin offers a hedge against negative impacts throughout the banking sector.
For both of these reasons, I expect Bitcoin to outperform the overall market next year.
Remember, though: With Bitcoin, you never want to dive in headfirst.
Instead, consider investing a small amount of money on a regular basis. That could be as little as $15 every two weeks. That way, you can “dollar-cost average.”
Block’s Cash App and PayPal offer a convenient way to do this. With these popular apps, you can start your Bitcoin portfolio with as little as $1.
But, again, remember that Bitcoin is a speculative asset. A small investment can go a long way. So never invest more than you can afford to lose.
And for more on how Bitcoin can help you preserve and even grow your wealth, as trouble spreads through the banking system, watch this free presentation I put together.
In it, I dive into the steps you must take before the next strike to America’s financial system comes on January 19.
Regards,
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Nomi Prins
Editor, Inside Wall Street with Nomi Prins