Stocks are the “favourite asset class” as markets are now accustomed to bad news, says one strategist


Traders work on the floor at the New York Stock Exchange in New York City, US, January 29, 2024.

Brendan McDiarmid | Reuters

Geopolitical risks may be rising, but stocks are still a “favourite asset class,” according to Beate Whitman, partner at Porta Advisors, who also said the outcome of the US election in November will be “largely irrelevant” to markets.

As investors enter an unprecedented year of elections around the world amid multiple large-scale conflicts at risk of further escalation, Whitman acknowledged that “politics will remain difficult and confusing,” but that markets are likely to be optimistic.

He said: “There are two mechanisms for the transition. One of them is energy prices. Will the problem in the Middle East be a transition to high energy prices, or war in Eastern Europe? Not really, if you look at how energy prices develop.” “Squawk Box Europe” on CNBC on Tuesday.

“The second thing is international trade and trade routes. We’ve seen that brutally in Covid and we’re seeing less of it of course – traffic through Suez, insurance companies raising costs, etc. – but it’s all digestible.”

Who will be in the White House in 2025, says the strategist

He added that markets have been “accustomed to geopolitical problems” over the past five years, so the impact of any further bad news on asset prices will be fairly limited.

The past year provides some support for this theory. Although the outbreak of war between Israel and Hamas and the Russian invasion of Ukraine shows no sign of abating, along with a host of other rising geopolitical tensions around the world, Standard & Poor’s 500 By 24% in 2023.

However, much of the momentum has been driven by the outperformance of the so-called “Magnificent Seven” giant tech stocks, leading to some concerns among investors about concentration risk. Whitman acknowledged that risk, but remained optimistic about the potential for a broader rally in stocks.

“I think it’s on the right track, and of course expectations are higher than ever, so there will be disappointments here and there at some point, but especially for stocks.”

Big Tech companies, says the portfolio manager

“But it is clear that technology has real potential for mania, and there could even be a meltdown in the market led by technology.”

Monetary policy emerged as a key driver of the surge near the end of the year after the Federal Reserve signaled that at least three interest rate cuts are on the table in 2024, providing a particular boost to high-growth stocks. The Federal Reserve will issue its next monetary policy decision and forward guidance on Wednesday.

Whitman noted that the only risk to this momentum would be if inflation proves more persistent than the Fed expects due to some unforeseen geopolitical risks coming into play, keeping interest rates higher for longer.

The strategist says:

But he thinks that will only be a problem for fixed income and growth stocks, which have enjoyed a lot From the recent rise, it will be positive for value stocks – those that are trading at a discount to their financial fundamentals – meaning that “if there was any doubt, I think stocks are really the preferred asset class.”

The US elections are “irrelevant” to the markets

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