As we approach the spring of 2024, traders of all types are starting to get the feel of what the markets have in store for us for the rest of the year. Stocks have been on a tear, with the S&P 500 making all-time highs in February. Bitcoin, fueled by ETF approvals, has led the cryptocurrency sector out of the wilderness. Forex traders will be looking to hone their strategies in anticipation of interest rate cuts in the late spring. Commodities traders will be looking at how global tensions may impact everything from rice to gold to oil.
There are certainly strong narratives shaping up for the year in trading. And we think we can pull out four strong ones for each sector mentioned above. None of these narratives should be construed as financial advice. Indeed, they are not predictions of whether the market will move in a certain way. They are simply narratives, the surrounding stories of some parts of the market that may drive traders’ actions. The narratives could change, or they may be reinforced. And, of course, different financial markets will have multiple narratives. But these overarching narratives may be significant for the remainder of this year:
Stocks
Former Merrill Lynch chief economist Gary Shilling recently said the AI boom (as well as Bitcoin) is largely overhyped, but others don’t think so. The likes of Microsoft and Nvidia have already seen their stock soar in no small part due to AI, but some think we have only scratched the surface. Consider what OpenAI is doing with the GPT Store – unleashing potentially millions of microservices for hire – or the fact that CEO Sam Altman is reportedly trying to raise trillions in funding to revolutionize chip production and, by association, build the architecture for OpenAI’s ambitions. Comparisons have been made to the impact of the internet, but some believe it will be more significant and adopted at an accelerated pace. Alphabet, Apple, and Amazon have largely been eclipsed by Microsoft due to its stake in OpenAI, but they won’t rest on their laurels. An AI race among them could be highly significant.
Forex
It’s fair to say that, forex trading has been intriguing over the last 18 months or so. Two words have governed the world’s most liquid trading market: “inflation” and “interest rates”. It doesn’t matter if you have been trading major pairs like EUR/USD or minor pairs like AUD/NZD; central bank action on inflation has been the hot-button topic. And now the focus is on when banks start to cut interest rates. There is the assumption that the Fed, Bank of Canada, Bank of England, RBA, and others will cut eventually, so traders are reacting to the news of when: Who will blink first, and who will be “higher for longer”. All of this becomes more intriguing when you start taking a contrarian view – what if inflation starts rising again? We should not rule it out, and it’s certainly an area where traders seem overconfident.
Crypto
The approval of the Bitcoin ETFs by the SEC was a watershed moment for the crypto sector, somewhat rubber-stamping crypto as a mainstream financial product. Bitcoin’s price action since the approval has been on an upward trajectory, and, as usual, that’s caused a general lift in the wider crypto market. Next up, though, are the proposed Ethereum ETFs, which the SEC will have to decide on by May. This is an interesting one for traders, as it is certainly not as clear cut as the BTC decision, and the SEC and its chair, Gary Gensler, have been clear they aren’t fans of other cryptocurrencies. Thus, it might be an opportunity to bet against expectations (some are putting the chance of approval at 70%), or we may even have a sell-the-news event. Whatever happens, ETH’s price action is going to be interesting as we head to spring.
Commodities
Not long before the time of writing, gas prices hit a three-month high in the United States. There are a few reasons why the price of gas has been inching up, not least the refurbishment of many American oil refineries, but tensions in the Middle East are playing a role. Brent Crude Oil is trading at just under $80 per barrel, about a third lower than the decade’s peak of over $120 during the initial outbreak of the Ukraine War. Yet, all eyes will be on the gathering storm clouds in the Middle East. It remains a local conflict, despite periodic attacks from Israel in Lebanon and Syria, but the potential is there for an overspill, even to the extent of bringing in Western armies. We will likely not see a repeat of the 1973 Oil Crisis, and it should be said that many Western countries have made contingencies for energy needs in the event of a crisis. Nonetheless, oil could still surge should the conflict escalate, and there is a very strong chance that it will.
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