Investors may be treading on precarious ground as two-thirds of respondents in the Bloomberg Markets Live Pulse survey caution against wagering on an early dovish shift in Federal Reserve monetary policy in 2024. Despite the S&P 500 reaching record highs, financial experts are grappling with resilient US economic data and Federal Reserve officials advocating against premature interest rate reductions. The sentiment reflects growing unease on Wall Street that the optimism surrounding a dovish Fed pivot might be excessive. Traders, initially projecting six rate cuts for the year, have scaled back to five, while doubts emerge about the March initiation of the monetary easing cycle, previously heavily priced in during the fervent rally of late 2023. Janet Mui, Head of Market Analysis at RBC Brewin Dolphin, points to challenges arising from inflation acceleration in major economies and the robust US employment data, asserting that the early and extensive rate hike expectations were inconsistent with a soft-landing scenario.
The cautionary tone extends to the evaluation of late 2023’s robust global stock gains, with over two-thirds of MLIV Pulse survey respondents viewing them as potentially ominous, signaling an overly rapid surge in market optimism. Facing a decision between embracing the positive market conditions and curbing optimism, investors, despite a mixed start to 2024, appear less bullish on stocks than they were in November. While January is deemed a poor indicator of the year ahead by the majority, the survey also reveals a shift in sentiment toward value stocks, with 44% of market participants favoring them over growth counterparts after the double-digit stock rally led by megacaps in 2023. Interestingly, despite the recent launch of US exchange-traded funds investing directly in Bitcoin, more than two-thirds of respondents plan to maintain their exposure to the digital currency unchanged over the next 12 months. The evolving landscape prompts reflections on the sustainability of high valuation levels in the stock market, with analysts cautioning against equating the end of rate hikes with a return to an era of free money.