Click here to read the full Edge Capital Q4 2023 Outlook.
The Weight
Interest rates remain high; inflation, while dropping, is higher than desired. Under the weight of that overhang U.S. equities suffered their first losing quarter since last year’s third quarter. While the optimists see better days ahead the market could not stand upright with both the current high level of interest rates and the prospect of those rates remaining high well into 2024 pressing down upon it. Those high rates led to strong U.S. dollar performance in the period, which was too heavy a burden for international developed and emerging market equities to overcome. As global equities floundered, cash became king as money market returns above 5% offered investors shelter in the storm.
Though the truly tragic humanitarian events that have unfolded in Israel are horrific in nature, they do not appear to be impactful to global capital markets. We believe the market is signaling, through higher stock prices, lower bond yields, and stable oil prices that the fallout from this event will be minor as it relates to the global economy. While oil initially jumped in price, it is currently trading below where it was from just a week ago. As the U.S. has become more and more energy independent in the 21st century Mideast conflicts have caused fewer and fewer ripples across markets. And while there is an element of a “risk off” trade taking place within the bond market, stocks are also rallying in the early days post-invasion. Clearly there is much at stake from a humanitarian and geopolitical standpoint, but the capital markets are signaling that they don’t expect there to be much of an impact. Of course, if the level of response from Israel increases already heightened tensions in the region and leads to wider conflict, that could put greater pressure on the price of oil which could have a more damaging impact to markets.
If you have questions, do not hesitate to reach out to your Edge advisor.
