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- The latest central bank research on QT is careful, rigorous, and grounded in the literature
- Unfortunately its main conclusion – that QE affects markets while QT doesn’t – is at odds with the lived experience of most market participants
- There is a much simpler reason why QT has had so little apparent impact
- Misunderstanding of this dynamic greatly contributes to the likelihood of future policy mistakes
- The rally in risk is often attributed to strong earnings
- But calendar earnings estimates have mostly been falling
- Macro drivers, not organic estimate optimism, are the true source of the markets’ strength
- After several months of liquidity tailwinds, risk asset pricing is starting to look excessive
- Improving spending, orders and hiring are all positives
- Despite this, earnings estimates are falling
- Fundamentals are reflective more of sticky supply than of dynamic demand
- Ongoing price pressures may well curtail central banks’ desire for dovishness
- But excitement about higher r* remains overdone
- Free-to-view replay of first segment of 16 Jan webinar
- Why strategists struggled in 2023
- A better way to think about markets
- Implications for 2024
- Full replay from 16 Jan webinar with Q&A
- Why strategists struggled in 2023
- A better way to think about markets
- Implications for 2024
- Open to clients with Group Webinar or One-on-One subscriptions, and to the press
- The remarkable performance of risk assets in 2023 is not primarily due to the growing likelihood of a soft landing
- It instead reflects markets being buffeted by extraordinary amounts of central bank liquidity
- For now, those technicals remain positive, but beyond Q1 they should fade or reverse
- Underlying momentum in growth, earnings and inflation – beyond sticky supply-side effects – is significantly weaker
- Hark! The VC angels sing
- God rest ye, merry crypto bros
- While PMs watched tech stocks take flight
- I’m dreaming of a tight market
- To be sung, please, in a spirit of global harmony
- The biggest surprise of 2023 was not the resilience of the US consumer
- It was that central banks added nearly $1tn in liquidity, rather than removing $1tn as had been widely expected.
- This swing alone is worth 20% on equities – almost exactly the YTD gain in the S&P.
- We think 2024 will show central banks have overtightened rates whilst simultaneously overstimulating risk assets.
- But we also fear their misunderstanding of the dynamics means they may yet do more of both.
- The rally does not reflect the likelihood of a soft landing
- It is the direct consequence of a surge in Fed liquidity
- Widespread misunderstanding of these dynamics increases the likelihood of more rate rises and a harder landing later
