How important is a good start? Very important on Wall Street, apparently.
In fact, in the past 70 years, there have been 25 times that the S&P 500 market has delivered a return of 5 per cent or more in the first 50 days. In all but one of those years (1987) it has gone on to deliver a positive return. The average (and median) return for those years with a strong 50-day start is 12 per cent.
“So the odds are high that we will have a positive year for markets,” says Pie Funds chief investment officer Mike Taylor. “Of course absent a Black Swan event that we can’t predict.”
So far the year had delivered relatively strong growth in many countries, Taylor said.
“Even China is showing a few green shoots, the US Fed just upgraded their growth forecast for the year to 2.4 per cent. Inflation is coming down even though it’s not quite at target in many places, central banks are talking about rate cuts, and even the RBNZ is sort of thawing out a little bit now about the potential for cuts this year.”
Taylor noted that the Swiss National Bank cut rates during March, the first Bank to do so.
“I see European inflation in a number of countries is actually under 2 [per cent] same in the UK and Canada. So I think that’s given markets a bit of impetus this year to think rate hikes are off the table.”
Hopefully, that would all add up to some rate-cut tailwinds while there was still reasonable growth and low unemployment, he said.
The biggest risk to that bullish scenario correction would probably be with a pickup in commodity prices.
“Oil is the one to watch,” Taylor said. “There’s still unrest around the world in Ukraine and the Middle East. If we saw oil prices push through $100 again that would put pressure on inflation and maybe that might cause the Fed to hold back [on rate cuts].”
There would probably be a point where the market was looking for “a bit of an excuse for a pullback, maybe 5 per cent.
“So I wouldn’t be surprised to see that sort of readjustment as it heads into what would otherwise be fair winds.”
Bitcoin bounce
Bitcoin - the original cryptocurrency which launched in 2009 - hit a record price last month, trading above US$75,000.
“In 2022 Bitcoin was written off by many and it fell quite a lot from its peak [in 2021] when there was exuberance around the world,” Taylor said.
In fact it dropped from US$64,000 in mid-2021 to under US$17,000 a year later.
“But it’s really survived and thrived in the past 18 months,” Taylor said. “A lot of that came from the investment industry itself deciding that it was going to recognise Bitcoin as an asset class.”
At the start of the year, American market regulators approved exchange-traded funds (ETFs) for Bitcoin.
These are listed funds that allow people to access Bitcoin (and other specialist investments) much more easily.
“That has fuelled demand, for Bitcoin and it reached a new high of $73,750 in mid-March.
Taylor acknowledged that he had been a critic of cryptocurrency in the past.
“I guess we have to move with the times and if it has been formalised as an asset class within the US, then investors like myself need to accept that Bitcoin is a legitimate asset class which can be seen as an alternative to stocks or bonds or property. People might look at using it in a similar fashion to gold.”
Of course, as Bitcoin integrates itself into the Wall Street mix it raises the question: could it now cause a wider financial crisis if it were to collapse?
“Not yet,” Taylor said. “The total value for Bitcoin is still around US$1.1 trillion. It’s relatively small from a global perspective, looking at all the markets and property. New Zealand’s property market by itself is worth more than a trillion dollars.”
The Market Watch video is produced in association with NZ Herald and Pie Funds. Liam Dann is Business Editor at Large for the New Zealand Herald. He is a senior writer and columnist as well as presenting and producing videos and podcasts. He joined the Herald in 2003.
Information is current as at 4 April 2024. Pie Funds Management Limited is the manager of the funds in the Pie Funds Management Scheme and Pie KiwiSaver Scheme (the Schemes). Any advice is given by Pie Funds Management Limited and is general only. Our advice relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees, like brokerage, if you act on any advice. As manager of the Pie Funds Management Scheme investment funds, we receive fees determined by your balance and we benefit financially if you invest in our products. We manage this conflict of interest via an internal compliance framework designed to help us meet our duties to you. For information about how we can help you, our duties and complaint process and how disputes can be resolved, or to see our product disclosure statement, please visit www.piefunds.co.nz. Please let us know if you would like a hard copy of this disclosure information. Past performance is not a reliable indicator of future returns. Returns can be negative as well as positive and returns over different periods may vary.