The Tribune

By CHRIS ILLING

CCO @ ActivTrades Corp

After their recent record run, the international stock markets lacked further momentum at the end of last week. On Friday, investors lacked buying arguments on both sides of the Atlantic and trading was experiencing a lacklustre day all around.

Market observers pay particular attention to what signals the monetary watchdogs, led by Federal Reserve chairman, Jerome Powell, will send for the coming year.

In the US, the Federal Reserve will leave the key interest rate unchanged for the time being. But, for the coming year, Mr Powell holds out the prospect of interest rate cuts. Investors on the New York Stock Exchange (NYSE) reacted with relief, and the stock markets continued to extend their gains after the interest rate decision last Wednesday. The most important US indices - Dow Jones, S&P 500 and the technology-heavy Nasdaq 100 - were recently trading almost 1 percent firmer. Investors also bought US treasuries. The major indices have all already risen sharply. The Dow and Nasdaq 100 are now even close to their former highs.

The prospect of significantly falling interest rates drove the Dow Jones Industrial Average further higher on Thursday as well. Since its rally after the interim low at the end of October, the US benchmark index has now gained just over 14 percent. Since the beginning of the year, there has been an increase of almost 12 percent.

If interest rates fall, equities will once again be more attractive to investors than fixed-income securities. Loans are becoming cheaper, and companies can therefore finance themselves more easily. Investments are becoming more affordable.

On the other side of the Atlantic, the European Central Bank (ECB) got in the way of the markets on their record hunt last Thursday. Unlike the US Federal Reserve, the ECB did not give any clear signals for interest rate cuts in the near future. The ECB left interest rates unchanged in the euro area for the second time in a row.

The outlook for 2024 can be seen as optimistic, but not euphoric. Analysts worldwide are divided on whether or not the US is slipping into a recession. But that does not dampen their optimism.

Even those strategists who expect a US recession see a price potential of five to 10 percent for the stock markets in Europe and the US. The predominant reason for this is monetary policy forecasts, which seem to have more of an impact on investor sentiment than the economy. After Powell’s speech last week, most experts predict the first interest rate cuts by the US Federal Reserve and the European Central Bank for the second half of the year.

The decisive factor for the markets will be the time when central banks declare victory over inflation. The savvy investor will keep a close eye on the inflation rates.