‘To be absolutely certain about something, one must know everything or nothing about it.’
They are the words of Henry Kissinger, who recently passed away.
If there’s anything we have learnt from the last couple of years, it is that markets can make fools of us all.
Trying to predict what markets will do over the next 12 months is a fun mind game, but let’s face it, the chances of getting it right is probably close to zero.
I see technical analysis as a windsock rather than a crystal ball. I use the charts to help manage risk and get a sense of market conditions.
Listening to what the market is saying means you have to become flexible and allow your views to change when the market tells you to.
This has been the guiding rule of my Retirement Trader advisory over the last two years. And it’s a big reason behind us keeping our heads above water when so many have made overall losses during this period in the markets.
Today though, I will have a stab at gazing into the crystal ball. This is what my experience in the markets says is lining up for 2024 at this point. But if conditions change, my views will change as well.
Outlook on interest rates
The most important event facing markets over the next six months is the taming of inflation and the peak in the interest rate cycle.
The spike in rates over the last few years caused chaos in the smaller end of the market, with a slow motion crash in many stocks.
I’d expect that situation to stabilise or reverse as rates continue to drift lower.
Property and infrastructure stocks with a solid yield should see buying support as financial conditions ease.
Investment grade corporate debt is probably the no-brainer investment over the next few months, as rates fall and spread along with them. Locking in 6.5% and above with inflation falling rapidly, and potential for capital gains as well, makes it look like a good bet.
The big question mark is whether GDP will come under pressure as a lagged consequence of high interest rates.
Stocks look strong as an ox heading into the New Year, but that optimism on the back of falling rates may be misplaced if growth nosedives.
If history is any guide, past interest rate cycles have often seen stocks falling as interest rates were cut by the Fed. Usually something breaks due to high interest rates and then the Fed cuts rates to stop things from imploding.
So that is the wild card that we have to be prepared for.
Wind in the sails of the stock market
Currently the trend in stocks is up, so as long as my charts are pointing up I will happily go with the flow.
(This means in the near-term you could see some aggressive trades from Retirement Trader in the New Year. The 50% discount deal comes with a 30-day subscription guarantee. So you can see what trades might get greenlit in the next month and still get a refund if you wish. To get the half-price deal go here.)
Money growth is still falling in the States and inflation is dropping rapidly, so perhaps the Fed can lower rates prior to something breaking.
With the US presidential election coming at the end of the year, you have to be prepared for the usual juicing up of markets by the incumbent to make things look rosy.
So you could make a case that stocks could surprise to the upside and rally sharply.
China has been working its way through the bursting of its property bubble and the worst may be behind them. India is still growing strongly, so demand for commodities from China and India could spark another wave higher in key commodities.
Here are my calls
The Aussie dollar will rocket back to 80 cents, and gold will break out of its three-year consolidation phase and trend straight to US$2,500.
Battery metals will end their bear market and set up the greatest buying opportunity of the decade as EV sales continue to spike higher and the short-term oversupplied situation evaporates.
Graphite, rare earths, lithium, nickel, and copper will hit a major low within the first six months of the year and then turn and rally in a major bull market.
Uranium should continue to rally as the fantasy of wind and solar replacing coal evaporates. Oil prices will initially fall on slowing growth but by the middle of the year could rebound and spike higher with other commodities as the US dollar falls.
If only forecasting were that easy…
Alas, all that I do know will certainly happen next year is that markets will continue doing what they have always done, which is constantly wrong foot unwary investors and shake them mercilessly out of their positions.
Mean-reversion is the one constant that I know will keep happening, regardless of what this or that market does.
All I have to do is look for solid mean-reversion opportunities and take part profits to create a free call option and then sit back to see what happens.
No need to imagine that I can predict the unpredictable.
Editor, Retirement Trader and Fat Tail Microcaps
Murray Dawes is our resident expert trader and portfolio managers. He is a former Sydney Futures Exchange floor trader who went on to design custom trading systems and strategies for ultra-wealthy clients (including one of Australia’s richest families). Today his mission is to help ordinary Aussie investors to make profitable investments, while expertly managing risk.
He uses his proprietary system for his more conversative and longer term focussed service Retirement Trader…and then applies the same system to ultra-speculative end of the Australian market in Fat Tail Microcaps (this service is strictly limited and via invitation only).