Stock Markets Begin New Year On Front Foot

FTSE 100 at 40: Reflecting Change 

Happy Birthday to one oft-criticised, much misunderstood institution that’s more 19th than 21st century in its outlook turning 40 this year from another (yes that is me). The FTSE 100 is not far from its all-time high but has missed out on the recent mega pump because it’s old world. Much maligned it may be, but it’s not its fault; rather broad compared to some peers perhaps, but less broad than say the S&P 500…it’s reflective of those companies we do well and, by their notable absence, which sectors we don’t. There is another big reason why we’re not at 10,000: holdings of UK listed firms by UK pension and insurance funds have declined from around 50% of their portfolios to about 4% in the last 20 years. Blame Gordon Brown. And blame the Financial Theory of Defined Benefit Schemes, which argued that pension liabilities were like bonds – which meant they should be hedged against market rates. This has had profound effects on the investment allocations and decisions affecting every corner of the UK market.  

The Risk Rally Pauseth 

Stocks have cooled their ascent and yields have risen along with the USD dollar in something of a mean reversion type trade. The FTSE traded up a bit early on Tuesday, the first day of trade in 2024, finished down a bit and is trading a bit higher this morning. The DAX was up a lot early and then finished only mildly higher and is flat this morning. The S&P 500 gave up half a percent, the Nasdaq fell 1.6% and the Dow eked out a small gain with defensive areas like health and staples picking up bid. So ... something of a pause rather than a pullback overall, marked out by a sharp pullback for the big winners of last year, with Apple down more than 3.5% on a downgrade from Barclays leading the megacap decline. Tesla was flat as deliveries beat forecasts.  

Mean Reversion 

US equity indices mainly fell but this masked a story going on under the hood. Health, energy, utilities and staples - the main laggards in 2023 - all rose, whilst the big winner of last year - tech – fell; this was as much about rotation as a retreat as the bond market flexed. The 10yr Treasury yield rose towards a whisker away from 4%, its highest in close to a month. The dollar rallied to a two-week high. Oil slid after giving up the rally early this week to trade at its lowest since mid-Dec... geopolitical premia never last long. API data today, EIA tomorrow.   

Barclays and Tesla 

Barclays has worries about Apple’s iPhone sales: “We are still picking up weakness on iPhone volumes and mix, as well as a lack of bounce-back in Macs, iPads and wearables ... The biggest takeaway from the latest checks is incrementally worse [iPhone] 15 data points out of China, together with developed markets remaining soft.” Tesla delivery numbers were sound, representing 38% volume growth year-on-year, albeit this constitutes a mild slowdown from the 40% growth last year.   

Bitcoin Still Blazing 

Bitcoin, a word. It’s blasted through $45k and I just don’t really know what it is, except maybe just enough of a mass of hype and enthusiasm for something that everyone has told themselves must have some kind of value...ETF talk is doing the rounds - basically a spot ETF would mean a lower barrier to entry for many investors, creating a larger pool of potential investors...also the halving is coming in April.  

I actually think this Bitcoin stuff has a lot to do with a libertarian fear of big govt. It’s like amassing gold at home in case the govt comes to take your guns and property (it was only I think FDR who actually took your gold, if you were a freedom-loving American that is). I talked about this in our Watchlist 2024 report in relation to central bank digital currencies (CBDCs):  

CBDCs: Freedom, Control, and Conflict 

In the post-pandemic world – where fears about state control and people being ‘nudged’ to behave a certain way – CBDCs are a totem of the overreach of the system. Perhaps only cash sets you free to spend as you like; governments could stop you spending on certain goods or services if they have control of the digital cash in your digital wallet. Republican presidential contender Vivek Ramaswamy decried CBDCs as a “trojan horse of the Great Reset” that would lead to a Chinese-style social credit system. The Bank of England and Treasury have been candid: “The digital pound would not be anonymous because the ability to identify and verify users is needed to prevent financial crime.” The politicisation of a rather technical area of our payments architecture points to the wider conflict in the battle for ideas; or the ‘culture wars’ for wont of a better phrase. Whilst there seems to be no real appetite among central banks and governments to replace existing payment rails at the moment, it undoubtedly holds a place in the imagination of many. This in turn could be supportive for alternative – anonymous –currencies. Like Bitcoin.