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2024: A New Cycle Begins

The market is transitioning from an environment of interest rate hikes to an environment of interest rate cuts. There is a specific portfolio to own when rates are rising and an entirely distinct portfolio when rates are declining.

  1. The rate of change for future rate hikes has materially changed. The market is pricing in a higher probability of rate cuts compared to an incremental rate hike. This inherently translates into a new market cycle and hence a different portfolio construct.

  2. The US earnings recession is now over. With 98% of companies reporting actual results, the blended year over year earnings growth for Q3 2023 is 4.8%, well ahead of the -0.3% estimate as of September 30th. As the prior three quarters saw declines, this will mark the first quarter of positive growth since Q3 2022.

  3. Investors seem to have thrown in the towel on the recession call. Q3 2023 GDP printed a 5.2% handle per the second estimate, even higher than the original 4.9%. In fact, we had an economic expansion amid an earnings recession in 2023. This is quite rare.

Because of items 1, 2, and 3, investors should consider moving beyond T-Bills, rolling, and waiting an entire year to accrue 5%. We believe this won’t cut it in the new cycle...


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