ICM Monthly Outlook - July 2024

The first half of 2024 will be a tough act to follow for equity markets. The S&P has returned c.18% year-to-date and 16% in the first half. Like recent years, a big theme has dominated this year's return. Approximately two-thirds of the US equity markets’ returns were driven by just a few names: Nvidia, Apple, Microsoft, Amazon, and Meta. Even Tesla, one of the laggards of the Magnificent 7, has rallied lately thanks to renewed optimism for robo-taxis and higher sales. Year-to-date, investors' returns are delineated by ‘performance with tech stocks’ versus ‘performance without tech stocks. We are cautious going into 2025. The changing political landscape is the biggest risk to the global economy, in our opinion. Polarised politics will lead to more extreme policies, higher taxes, less globalisation, and lower investor returns.  Against a backdrop of increased tariffs and higher taxes, we are not pollyannish for global trade, which could result in a lower oil price from reduced demand. On the other hand, the value of the US dollar should decline against its trading partners if the Federal Reserve Bank starts to cut rates faster than the other major central banks, which is likely. This would be welcome news for emerging economies. Typically, looser financial conditions and credit expansion favour the real side of emerging market economies. Improving global liquidity and a lower oil price makes it easy to see a path to higher global growth.

ICM Monthly Outlook - June 2024

In May, the US economy took two steps forward and one step back from that elusive pivot. Jobless claims and the Institute of Supply Management suggested weakness in the US, but nonfarm payrolls were much stronger than expected. The US 10 year yield was four basis points lower on June 10th than on May 10th. Our outlook synopsis remains that the disinflation trend is still intact, at least for now. We expect core PCE to drop to 2.5% from 2.8% as lower shelter costs and declining wage costs feed into the year-over-year measure. We expect the jobs market to continue to slow and rebalance. The recent JOLTs report points to this loosening in the jobs market. However, getting inflation much lower than 2.5% could be a struggle as the economy and business cycle still looks resilient.

ICM Monthly Outlook - May 2024

Investors, commentators, and journalists remain fixated on #inflation and, ultimately, its impact on monetary policy. For nearly a year, writers are like a broken record, parsing the same data with the same rhetoric, looking for the first hint of the elusive pivot by the Federal Reserve. As far as the Federal Reserve’s Chairman is concerned, there’s no hurry to cut rates. While the most recent inflation data was encouraging, it is probably not enough to convince Federal Reserve officials to cut earlier than September. Click through to view our market outlook and predictions

ICM Monthly Outlook - April 2024

What a difference a year makes. This time last year, markets were digesting the failures of Silicon Valley Bank (“SVB”), Signature Bank, and Credit Suisse. At the time, it seemed that Central Bankers had gone too far and severely stressed the financial system. In addition to a strained financial system, ominous signs loomed over the US economy. Economic indicators, ranging from The Conference Board Leading Economic Index to the ISM US Manufacturing Purchasing Managers Index, painted a bleak picture, and economic commentators were falling over themselves to predict ever-gloomier outlooks. Fast forward twelve months, and the US economy has just recorded a remarkable nominal GDP growth of 6.3% in 2023, 2.5% in real terms. The S&P 500 has surged by an impressive 30% over the past twelve months. So much for economic forecasts!

ICM Monthly Outlook - March 2024

February 2024 was another strong month for equity markets. Of all the major developed economies, the US continues to enjoy the best economic performance, has the best economic prospects, and, therefore, continues to see the best financial market results. While we expect the US growth rate to be softer in Q1 2024 than it was in Q3 and Q4 2023, due to below-average retail sales and reduced construction activity caused by adverse weather conditions, we still expect the US economy to grow strongly in Q1 and throughout 2024. The equity market’s great run-up in 2024 has been led by renewed investor confidence that the US economy is solid, helped a little bit by higher-growth companies such as Nvidia and other mega-cap tech stocks. The US dollar has performed exactly as we anticipated and should hold its ground or modestly strengthen against most global currencies in 2024, thanks to the US’ stronger economy and better prospects.

ICM Monthly Outlook - February 2024

Last month we stated "We are now ready to say that 2024 will be the year that this bull market grows up" when covering the section on market implication. Given the rally we have seen in equities already, we have not been disappointed. We remain confident that US financial markets will continue to perform strongly this year, thanks to growing corporate profits, continuing disinflation, and easing monetary conditions in the second half of the year. Equity markets are not priced to reflect any material probability of a recession. Any meaningful economic slowdown would weigh on corporate profits, but we believe the Federal Reserve has the levers to re-stimulate growth if unemployment or deflation become problems.

ICM Monthly Outlook - January 2024

Omne trium perfectum. This trio of Latin words, in principle, suggests that all good things come in threes. We believe it is a very apt description of where we find ourselves in the current investment cycle at the beginning of 2024. Even though 2023 was a strong year for returns across many asset classes, we believe 2024 will see a continuation of this strength, and it is more likely than not to last into 2025, making for possibly another two years of strong returns. The premise underlying this constructive view can be distilled down to a simple fact - we are now in a new cycle of easier monetary policy where all good things for risk assets tend to follow. Such a cycle takes time to run its course fully, implying that market conditions will probably be supportive for risk asset markets for all of 2024 and most, if not all, of 2025. According to Alpine Macro research, the average price gain in US stocks in the two years following a bear market is about 60%. So far, the S&P 500 index has risen 32% from its 2022 lows, which supports the view that more price gains can be expected this year.

ICM Monthly Outlook - December 2023

As we draw toward the end of another eventful investing year, evidence suggests that the fog of uncertainty around the course of inflation has finally cleared. Of course, some voices will continue to argue that inflation will remain sticky and that the last mile of disinflation will be the hardest. Yet, regular readers of this letter will know we have never subscribed to this dubious theory. Could we be on the cusp of a new US cycle where we could see a Goldilocks-type economy where conditions are ‘just right’, typically characterised by a combination of low inflation, low unemployment and steady economic growth? Read on to find out more.

ICM Monthly Outlook - November 2023

Storm clouds gather, and gentle breezes become gusting winds. Hauling in the sail and setting down anchor is suddenly a tempting option, yet this decision will come at a cost. Greeting loved ones and the enjoyment of home comforts will have to wait. Like sailing a yacht, every investment decision comes with consequences. Deciding not to take a risk can avoid the cost of making a financial loss but will come at the opportunity cost of losing out on a potentially profitable opportunity. The investment manager's skill is to weigh these explicit and implicit risks or costs and decide which option offers the best, probability-weighted, expected outcome. There are no free shots, unlike the usual commentators in the business news media who offer an opinion one week only to offer a very different view the following week, seemingly free of consequences. Beware of any investment advice given without obvious skin in the game. The talking heads would have you believe, this time around, that bonds are crashing as yields surge, equities are overvalued, and economic peril lies ahead. Read on for our view...