Listening to experts can be risky

At a conference hosted by Firstlinks’ sponsor Pinnacle this week, David Allen from Plato Investment Management opened his presentation with this slide.

This does not differ from my own view of predictions which I outlined in a recent article and the following video. 

David Allen went on to suggest that if investors had behaved like George Constanza in that famous Seinfeld episode where he does the opposite of his every instinct, then they would have had a great 2023.

That strategy doesn't always work, of course, though it’s perhaps worth pondering what the main consensus narratives are for 2024. Here are my suggestions:

• Inflation will head back towards central bank targets.
• Interest rates will fall, first in the US, then Australia, and probably more than the central banks are currently forecasting.
• There’ll be no recession in the US, or Australia.
• A goldilocks economic environment will be positive for both stock and bond returns.
• China may be headed for a multi-year downturn, unless the government stimulates the economy in a big way.
• Lithium and nickel are oversupplied, and those markets will take some time to work through that.
• Australian consumers will have a tougher time but muddle through, as will the housing market.
• Geopolitics is the key area of potential risk, whether it be in the Middle East, Ukraine, or elsewhere.

These consensus narratives for 2024 are already being reflected in markets. In early February, the S&P 500 closed above 5,000 for the first time. It took 757 days for the index to go from 4,800 to 4,900 and just 15 days to go from 4,900 to 5,000.

In the week ending February 9, the S&P 500 had risen in 14 of the previous 15 weeks – a run last seen in 1972.

That’s resulted in the VIX – a key measure of US market volatility – being below 15 for 60 straight days, something that hasn’t happened since 2018.

Rising markets have lifted the spirits of fund managers. Not many of them predict a recession over the next 12 months.

In fact, fund manager sentiment is the most bullish in more than two years. Admittedly though, the bullishness isn’t at extreme levels.

The big question is whether the consensus narratives which have been driving markets higher will prove wrong again this year? Time will tell.