Hold your hat as powerful forces shape global markets for rest of 2024

Devere Group says US presidential election, fluctuating US Federal Reserve policies, and Middle East tensions are fuelling uncertainty in global markets
BetaShares chief economist David Bassanese said while geopolitical issues remained a concern he was optimistic about global markets for remainder of 2024
Moomoo market strategist Jessica Amir said pressure was mounting on global equity markets from Middle East tension

With just three months of 2024 to go experts agree that global markets are being shaped by a range of powerful forces.

Founder and CEO of global financial advisory company deVere Group Nigel Green told Stockhead the US presidential election, fluctuating US Federal Reserve policies, and a host of geopolitical factors, particularly in the Middle East, were converging to fuel uncertainty.

Yet while these elements heighten volatility, they also open the door to potential opportunities for investors who can strategically position themselves.

“In the United States, the intersection of ongoing Federal Reserve rate cuts and political uncertainty surrounding the election is keeping investors on edge,” he said.

“Historically, stock markets tend to respond positively to rate cuts, particularly when they are not accompanied by a recession, and this year has proven no different.”

However, Green said markets remained vulnerable to sudden shifts in sentiment based on election outcomes.

He said large-cap stocks were likely to remain in the spotlight during this period and offer greater stability compared to their smaller or mega-cap counterparts, particularly in a volatile environment where quality and low-beta investments tend to outperform.

“With investors showing a preference for dependable, blue-chip companies, we may see continued capital inflows into large-cap equities as the year draws to a close,” he said.

Middle East conflict

Green said oil prices remained sensitive to developments in the Middle East, particularly as OPEC’s production decisions come under greater scrutiny.

“Any disruption in the energy supply could send ripples across global commodity markets, impacting everything from inflationary pressures to stock market sentiment,” he said.

“As oil continues to play a pivotal role in Middle Eastern economies, regional financial markets will be closely tied to energy sector fluctuations.

“Investors with exposure to these markets will need to remain vigilant, as potential volatility could bring about either high rewards or substantial risks.”

BetaShares chief economist David Bassanese told Stockhead while geopolitical issues were a concern he remained optimistic about the equity outlook.

“My base case is the situation does not escalate to a full on war between Iran and Israel as I think both sides would see that as not in their interests,” he said.

US soft landing but Aussie market under pressure

Bassanese said the key driver of Australian and global equity performance was a soft landing scenario in the US.

He said inflation had come down in the US, the Fed could provide policy support and the world’s largest economy hadn’t tumbled into recession.

“It’s almost like a Goldilocks environment so that is the key driver,” he said.

“Valuations look rich but I don’t think markets will be driven by PE expansion from here. But the earnings outlook globally is still robust with 10% growth in earnings expected on a 12 month view.”

Bassanese forecasts the Australia market will continue to underperform for two reasons, not withstanding a bit of a bounce back in the resources sector of late.

“In aggregate our earnings outlook is not as bullish as the global outlook and we are looking at half the expected earnings growth to what the global market is expected to deliver,” he said.

“Our valuations aren’t especially cheap given we’re trading on 18 times forward earnings so close to the global forward PE valuation and the RBA is going to lag the Fed in cutting rates.

“Investor cheer from rate cuts is going to be delayed relatively to what we are seeing in other countries.”

However, Green said the S&P/ASX 200 Index had already hit record highs this year, fuelled by optimism around potential rate cuts and looking ahead the Australian share market was set to continue its upward trajectory, with the possibility of ending the year at new all-time highs.

“The outlook for real estate and retail stocks, in particular, is becoming more favourable,” he said.

“These sectors, which have been largely overlooked, are now poised for a comeback as the broader investment climate improves.”

Overall trend is still up, but pressure mounts

Moomoo market strategist Jessica Amir told Stockhead the overall long-term trend was still up, supported by stronger than expected economic growth in the US and Australia along with US interest rate cuts and Chinese stimulus packages.

“We have a nice trifecta supporting markets for the long term but right now we are in a bit of a pickle with storm clouds hitting markets from rising Middle East tension,” she said.

“The world is concerned about what it could mean if 20% of oil supply is cut off.

“There is caution to the wind and investors are taking profit in stocks which have done really well and that might continue.”

She said factors supporting markets in the long term was actually now causing pressure short term.

“The US economy has been growing so fast and strong now there (are) expectations some of those rate cuts coming from the Fed could be shaved back,” she said.

“Concern is markets got a bit ahead of themselves and could be due for a pullback.

“Expectations are being shaved down for rate cuts and that’s why we are seeing bond yields rise.”

Don’t fear volatility

Green said while market volatility often conjures images of wild swings and investor panic, it’s important to understand that a certain level of volatility is not only normal but also healthy.

“Many of the recent fluctuations, especially those driven by sentiment rather than company fundamentals, have created buying opportunities for those willing to embrace risk with a long-term view,” he said.

“While sentiment-driven sell-offs can be unsettling, they also pave the way for significant gains when markets stabilise.

VanEck sees gold miners rising

VanEck Asia-Pacific CEO and managing director Arian Neiron told Stockhead small companies, locally and globally, also presented an opportunity but selectivity was paramount with gold miners holding potential to do well.

“We could still see the US dollar come off and gold climbing to new heights,” he said.

“Gold miners are still undervalued relative to the price of gold, and we think with strong cash flows they could outperform the yellow metal into the backend of 2024.”

READ: Monsters of Rock: Gold’s at US$2650, Aussie miners are barely pricing in US$1900

The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead. Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.