After a very difficult year for the leading US indices, with the S&P 500 experiencing its biggest drop since the financial crisis, the markets saw an unprecedented rally in the stock market in the new year. The S&P 500 and the Dow Jones in New York rose six and 2.5 percent, respectively, while the technology index Nasdaq rose 11 percent.
– This suggests that there is an expectation among investors that a peak in interest rates is near and a soft landing has been priced in, says Elisabeth Holweck, chief economist at Sparebank 1 Gruppen.
Here at home, the main index on the Oslo Stock Exchange is up just under one percent so far this year.
Waiting for another jump in interest rates
The US key interest rate is at its highest level since former central bank chief Ben Bernanke cut interest rates to zero during the 2008 financial crisis. Despite the high interest rates, the market priced in a new rate hike of 0.25 percentage point on Tuesday. .
Holvik believes we are seeing the beginning of the end for rate hikes.
– We believe that the Fed will beat inflation and the peak of interest rates may have already reached in February or March. She says the tension on Tuesday is related to future guidance regarding the interest rate path.
New World Order
Among other things, Holweck points out how the increased stimulus of the economy in the United States as a result of the so-called IRA and the increase in commodity prices are uncertain things that could cause headaches for the US central bank. In particular, she believes that the Irish Republican Army, a US federal law aimed at reducing the national trade deficit and encouraging more US production of green energy, shows that the economy is entering a paradigm shift.
– IRA is a natural step towards the division of the world that we have seen recently. We have received the return of production to the West and recognition of the need to control raw materials, metals, metals and components of technology. To realize this, you need to increase your production in the West, and this means that the cost level of a number of goods will rise, you say.
Since the fall of the Berlin Wall and the collapse of the Soviet Union in the 1990s, the world has entered a more liberal era both politically and economically. International trade increased sharply, defense budgets were cut and public optimism was high.
Recent years have seen a reversal of these trends and the rise of authoritarian regimes with an aggressive foreign policy.
– You can no longer say that ownership of capital is irrelevant. It says who owns and controls the means of production matters.
Better than expected
While US inflation figures gave investors reasonable optimism, the situation is more dire on the European continent. Price growth in the UK remains at double-digit percentage level and in the EU it is 9.1 per cent. Therefore, it is priced in by having the European Central Bank (ECB) and the Bank of England (BOE) raise interest rates twice.
– Great Britain is facing by far its biggest financial problems, says Gaute Eie, investment manager at Eika.
Gaute Eie, Chief Investment Officer at Eika Kapitalforvaltning. (Photo: Peter Berntsen)
Economic development in Europe shows better trends.
– The bottom of the European stock exchange was reached in October 2022. Then things looked darker. The price of gas was $60 (per barrel of oil equivalent, editor’s note) and Deutsche Bank predicted negative GDP growth in Europe of 2% and in Germany of less than 4%, he said.
Instead of USA than Germany
Germany is among the many European countries that find themselves in a very difficult economic situation. German industry relied largely on cheap energy from Russia and cheap imports from China. The war in Ukraine and the escalating trade war between the US and China make this all the more urgent.
– But Germany managed to fill gas reserves with LNG from Asia, so the price is now $16. Since the bottom, the German DAX has also gained 26 percent, says Gaute Eie.
At the same time, he maintains that European markets have lagged behind the American ones over the past 15 years and he has no doubts where he will invest his money – in the United States.
Europe’s GDP barely grew for ten years and the DAX index rose only 100 percent, compared to the S&P 500 which rose 250 percent. We think the US is more investable than Europe. This is where the total value will be created in the future, says Eie.
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