The market adage looks unlikely to apply in 2024, says Max King. Global equities are proving resilient
Markets
There is a rule of thumb in the City that you should buy a share if it goes up on bad news and sell one if it goes down on good news. The reason for this is that the share price tells you very quickly whether the good or bad news is already discounted, implying that the collective wisdom of traders and investors is more useful than the individual opinions of analysts.
This principle also applies to markets, as reflected in the adage that “bull markets climb a wall of worry”. They have certainly been doing that so far this year. Expectations of cuts in interest rates in the UK and US have been postponed and reduced.
This is partly due to some disappointing inflation numbers and partly to the strength of the US economy. The yield on ten-year government bonds has risen 0.7% to 4.2% in the UK and 4.5% in America, raising the valuation hurdle for equities to climb over.
The price for benchmark US oil futures, known as West Texas Intermediate (WTI), has risen by 17% to $83.60 owing to the conflict in the Middle East, which, it is widely feared, could worsen. Damage to Russia’s energy infrastructure and robust demand are also underpinning prices.
The price of Brent crude, which is of better quality, is $4 higher and threatens to breach $100. The price of gold, widely regarded as a good hedge against inflation and political uncertainty, has risen by a third to $2,400 an ounce since 7 October 2023.
Budget deficits, we are told, are out of control, and national debt spiralling upwards makes a crisis of government solvency inevitable. The UK and most of the European economies are barely avoiding recession. Growth is robust in the US and corporate earnings are increasing at a brisk pace, but this is reflected in a stockmarket multiple of 20 times this year’s earnings.
Overhanging all this is the threat of China invading Taiwan, a widening war in the Middle East and, perhaps, a third world war. Brutal wars continue in Africa, Haiti has descended into anarchy and there is no sign of venal and incompetent regimes being under pressure anywhere nominally at peace. There is even a film on release postulating civil war in America – which sends the message that we should forget about it being the world’s policeman.
Onwards and u
