MACRO PREDICTIONS - 2024 REVIEW AND 2025 LOOK AHEAD
FROM DECEMBER 2023 CLIENT POST
1. "Risk of 1999-esque ramp in equities gives way to solid rejection in those MAG7 players from concentration risk unwind."
- That happened into early July with NDX -15%, SMH -25%, NVDA -35% which I caught with precision, before an Aug 5th convexity-triggered short-covering rally commenced when VIX collapsed from 65. SVXY fell all the way to Nov 1st, 2023 lows.
2. "USD weakness at first supports equities, and later hard commodities (in play with gold/silver), and then later slows/interrupts the bond bounce which is bearish. Gold and Yen stay bid as DXY falls."
- The falling USD was a big reason for equities' advance, along with falling yields from the Nov 1st, 2023 "Fed Pause & Yellen Yatzhee". Yen was not bid strongly higher until the yen-carry-trade unwind of July and into the August 5th event (VIX 65). Lucky or good, I warned July 9th & again 13th that it was coming. USD continued to weaken against commodities in real terms all year but not against FX in nominal terms.
3. "No, I do not think Fed hikes or even continues to pause. I see Fed likely cuts in March"
- I was right on direction of Fed but wrong on timing. By waiting, they doubled-down on a 50bp rate cut in September.
4. "higher Jobless Claims will carry over to 4% Unemployment Rate ... The irony for market participants will be how recession worries and Fed cuts does nothing to lower [equity] prices."
- The unemployment rate did move to 4% in May, 4.1% in June, and 4.3% in July, and it hasn't dropped below 4% since. Market still moved higher, recession risk was pushed out, and yields gyrated violently ~4% all year.
5. "Outlier: Biden drops out"
- Biden was pushed out. Close enough. And then 30 days before the election, I posted for clients that I predicted Trump would win and gave reasons why.
Remember, all of the above was made one year ago with the info I had, and of course I modified my opinions for clients when the information changed throughout the year. I had many long-term clients tell me they made their year within the 1st 4 months based on my call for higher equities!
And all heard my strong warnings July 9th to the coming correction.
Then after the August 5th short-covering rally, September 11th, I doubled down long and updated my end-of-year SPX pricing. We hit my $6012 price target by November.
SECRET SAUCE?
My success in market timing is attributable to these five factors of focus:
POLICY INTERVENTION is the reason-for-the-season in why stocks AND bonds continue to get supported. Fed & Treasury stepping in at critical levels and working together to ensure that liquidity is ample in credit, treasury and equity markets has been a cornerstone to the market advance. Human behavior does the rest.
SECTOR ROTATION has been my secondary focus as a way to time market direction and money flow. I can't repeat enough: "IN LIEU OF SECTOR ROTATION, THERE WILL BE VOLATILITY". This is also how I time volatility to help clients position, protect and profit.
PATTERN RECOGNITION is a core strength of mine - whether scanning and synthesizing market-moving news, removing noise from signal in macro data, or sizing up directional moves in stocks from technical analysis, I rely a great deal on my ability to interpret the market in a language I understand: high-probability continuation or reversal patterns.
INTERMARKET ANALYSIS is my way of identifying divergences across assets to help time inflection points. Hard to explain, but easier to show on a chart, especially when I overlay with technical analysis. It is what gives me a lot of confidence in my sector rotation and macro trend calls.
OPTION FLOW is the micro to all of this macro and what confirms/denies if their is conviction in the index, sector, stock move I see from above analysis. Quants/CTAs/Hedge Funds/Other leave their footprints - in dark pools and in the option market, through analysis of sold puts and aggressive call buying on the aggregate.
In addition, I am constantly looking to lawyer the bull/bear argument for market direction, sector rotation and stock selection. I keep eyes/mind open and use a bit of farm-girl commonsense to smell the B.S. Other than that, I realize that, lucky or good, we make our own luck through a lot of hard work. And what I lack in book smarts I make up for in hard work.
And it's hard work to predict these markets.
NEXT! 2025!!