Due to the rise of the AI boom and the faster than expected cooling of inflation in the United States, the S&P 500 index rose by 24.23% for the entire year of 2023, while the Nasdaq Composite Index surged by 43.42%. The US stock market welcomed the end of 2023 amidst the joyful Santa Claus market.
Looking ahead to 2024, both Wall Street and the White House are full of confidence in the prospect of a soft landing of the US economy and a significant cooling of the Federal Reserve, and are betting that the US stock market will continue to have a bumper year next year - however, some economists have raised concerns and warnings.
The White House and Wall Street are still immersed in the frenzy of 2023
On Sunday (December 31) Eastern Time, Jared Bernstein, Chairman of the White House Committee of Economic Advisors, emphasized in an interview the cooling of inflation and the leap in consumer confidence in 2023, and concluded that the United States will have a good start in 2024.
Bernstein also claimed that if US President Biden wins re-election in November next year's presidential election, he will continue to focus on reducing costs for Americans: if you really look at economic trends... I think you see some real momentum that will give us a good start in the new year.
Data shows that inflation in the United States has significantly eased during 2023. At the beginning of 2023, the Consumer Price Index (CPI) in the United States had an annual rate of 6.4%. By November 2023, this proportion had dropped to 3.1%.
The report released by the World Federation of Large Enterprises on December 20th showed that US consumer confidence rose to a five month high in December. At the same time, the University of Michigan Consumer Confidence Index rose to 69.7 in December, up about 14% from the previous value of 61.3, marking the largest increase in over 30 years.
For most of Biden's tenure, the University of Michigan Consumer Confidence Index reflected the general pessimism of American households towards the economy, but the latest data shows that Americans are increasingly confident that inflation will eventually decline.
Bernstein pointed out that in over half of the states in the United States, gasoline prices are already below $3 per gallon. According to the annual outlook of price tracking agency GasBuddy.com, the average retail gasoline price in the United States may continue to decline by 13 cents next year, to $3.38 per gallon, marking the second consecutive year of fuel cost decline.
Bernstein also stated, "This is a very strong Christmas season." He added that from early November to late December 2023, Christmas Eve, US restaurant consumption increased by 8%, online sales expenditure increased by 6%, and overall retail expenditure increased by 3%.
In fact, Wall Street also holds optimistic expectations for the US economic outlook.
As of December 19th last year, major institutions on Wall Street still expected the average level of the S&P 500 index to be above 4850 points over the next 12 months, while the S&P 500 index closed at 4769.83 points in 2023. This means that most people on Wall Street expect the US stock market to continue to rise after this year's surge.
Former US Treasury Secretary: The market overestimates the space for the Federal Reserve to cut interest rates
Despite the increasing optimism in the White House and Wall Street, former US Treasury Secretary Lawrence Summers and renowned US economist David Rosenberg both believe that the market is too optimistic.
Former US Treasury Secretary Summers believes that investors may have underestimated the risk of US inflation.
The futures market currently expects the Federal Reserve to cut interest rates by more than 150 basis points in 2024, but the dot matrix at the end of December shows that Federal Reserve officials are likely to cut rates by only 75 basis points next year.
&Amp; Quota; I think the market may still underestimate this risk: our progress on inflation may not be as great as people hope, and the space for the Federal Reserve's loose policy may not be as great as people hope; Quota; Summers said, "I cannot be certain that we are a country that can maintain a target inflation rate of 2% in the long term."
In fact, as the global geopolitical risks continue to increase, including the Russia-Ukraine conflict, the Palestinian Israeli conflict, and the recent attacks on the Red Sea by Husei militants, they may disrupt the global market and push up inflation again. Summers pointed out that, in addition to geopolitical risks, potential sources of inflationary pressure include the US federal government's salary hikes, ongoing strikes, tight labor markets, and rising housing prices.
Summers said, "In my opinion, it seems too early to claim that the United States has achieved the well-known 'soft landing'."
Rosenberg: The US stock market has been severely overbought
David Rosenberg, a well-known economist who accurately predicted the foam in the US housing market and the former chief analyst of Merrill Lynch North America, also took a pessimistic view of the prospects of US stocks. He mentioned:
"The US stock market appears to be increasingly overbought, even to the most casual observers. The major average indices of the US stock market, especially the Nasdaq index, have seriously exceeded the 50 day trend line. Even from an optimistic perspective, the sentiment indicators of the US stock market have reached extremes. The valuation of the US stock market is still too high, and based on risk-free interest rates, the current valuation of the US stock market is not convincing. Profit expectations are no longer rising - in fact, they have begun to show a slight downward trend."
He mentioned that although the US stock market remained strong at the end of December last year due to the "Santa Claus market", it will face greater pressure in January this year:
"At the beginning of the new year, we are likely to still have a hangover over over the 'Santa Claus market'. It is certain that many investors choose to wait until January for tax reasons to sell their stocks, which delays the potential pullback in the US stock market. However, in the end, this may lead to a worse situation for the US stock market in January."
"The economy is much more fragile than it seems." Rosenberg pointed out that a recent survey showed that the business environment is deteriorating, and emphasized that the 10 economic indicators released in the past month, including non-farm employment, new housing starts, and consumer spending, have all seen downward revisions.
He also emphasized that the significant and rapid rate hikes by the Federal Reserve in the previous two years will continue to have an impact on the economy, and these impacts will not disappear immediately with the gradual rate cuts by the Federal Reserve in 2024:
"The fastest interest rate hike cycle since the 1980s has begun to have an impact - just as authorities and the market are fully supporting the claim of a 'soft landing'. American households are feeling the impact of the most aggressive tightening cycle since the 1980s, with credit card and car loans facing financial difficulties reaching the level of the 2008 global financial crisis. As layoffs increase and banks tighten loan conditions, the default amount of these loans is expected to further increase."