I know, the Fed turned hawkish again recently.
Everyone was in a jubilant mood – the stock market even more so when the Fed stopped hiking rates and signaled tapering last year.
While that sudden attitude caught most people off guard, I'm not too worried.
Rates should drop in 2024, we don't know when
This has been an open secret since late 2023. High interest rates will never last because these long terms will eventually lead to a recession.
We have gone through several FOMC meetings where the Fed was relentless in raising rates. So when rate hikes stopped, it's only natural to think that rate cuts are just around the corner.
While it would be foolish to rule out the possibility of a recession, the chances of it happening seem slim. Any potential recessionary event would be triggered in the 2nd half of 2023, as predicted by many economists and analysts.
It would take some time for the rate cuts to be delivered definitively and to see their effects, but the world can survive another few months of high interest rates.
So with the coming rate cuts, what investment assets could do well?
1. Stocks
Stock markets have already had a soft landing since late last year.
And as interest rates fall, borrowing costs will decrease, making it easier for businesses to grow through capital expenditures, or for cash cow businesses to generate even more cash.
The overall stock market should be fine, barring another unexpected black swan event. Fine and mediocre companies will flourish and prosper together when interest rates fall.
However, this could mean that it would be much harder to spot problematic companies until the next interest rate regime kicks in.
Stocks across all sectors should do well – also for banks as low interest rates would encourage large purchases such as homes and cars.
That said, you don't need me or a Fengshui master to tell you that. Look what happened at the end of 2023.
This was just the beginning. Although some have associated Cramer with dodgy stocks, his new creation 6 packs they are good options. Despite its popularity, I still think these 6 companies will prove that even Cramer can't stop his hot streak.
2. REITs
REITs In 2023 they were hammered and beaten.
Most REITs have shown a recovery in unit prices The Fed stopped raising rates. However, most of them are trading far from their time (ATH), because the maturity of the debt is not reached suddenly.
It would take 2-3 years for most REITs to see a lower weighted average cost of financing. However, lower interest rates will help in terms of property valuations.
The gearing ratio will take your breath away. And REITs with ample leverage will seize the opportunity to start a buying spree.
However, I would be a bit more cautious if interest rates remain hawkish over the long term.
However, CapitalLand REITs and Mapletree REITs looks pretty strong to deal with, even if interest rates are higher a little longer.
3. Goods
most of goods should see more upside overall.
Each sub may experience different scenarios. Complex grains – soybeans, corn and wheat are seeing low and disappointing prices due to bumper harvests in Brazil and Russia, while cocoa, coffee and sugar prices are rising.
Due to the different moving parts, commodity prices may go up or down. But with a weaker USD, there will be one less reason for high prices.
Most, if not all, commodities are denominated in USD. “Cheaper” USD means it will cost more in dollars to buy or sell a commodity.
It could also stimulate more consumption. While investing in commodities is not that easy, investors can look into Commodity ETFs to gain exposure to commodity markets.
However, consider it negative roll yieldwhich can affect your overall profit.
I wouldn't necessarily recommend companies in the commodity business either; You can never be sure whether the risk or direction of such companies is favorable.
4. Properties
It would not be fair to mention REITs but not properties.
Lower rates could encourage more home purchases. So in land-scarce Singapore, don't expect prices to correct significantly.
Last month, an HDB flat went in Toa Payoh earned a whopping $1,568,888, Setting a new record as the highest resale flat ever sold in Singapore.
That said, downturns rarely happen in the Singapore real estate market. Prices rose even during the pandemic.
So it is impossible to bet on the Singapore real estate market to remain strong this year as well.
On paper, that is it bodes well For those aiming for a BTO!
5. Cryptocurrency
As fiat financing costs become cheap again, we can be looking at the end crypt winter.
Bitcoin has seen a strong rise in recent months, adding about 13% to its value year-to-date, according to data from CoinGecko.
Will we see Bored Ape Yacht Club (BAYC) images peppering all social media?
It may be too early to say that winter is over. But crypto adoption and prospects aside, as long as there's liquidity, it would be foolish to bet against this speculative asset class once the bandwagon engines start running again.
with me Bitcoin Spot ETF done and dusted, crypto enthusiasts will look to the next crypto to achieve similar status.
Ethereum anyone?
6. China
China deserves its own section as the general market has challenged the belief in long-term value investing.
Instead, it has held to the law of gravity, where most stocks have fallen or stayed below their all-time highs.
On the other hand, India has surpassed China in terms of population growth, but India's stock market capitalization has surpassed that of Hong Kong for the first time.
Although it still sounds like a tunnel with no light, I believe so the night is always darkest before the dawn.
It is Tencent Holdings Ltd (HKG: 0700) great business yet? Hell yes.
Is it worth trading at 1/3 profit price Meta Platforms Inc (NASDAQ: META)? It depends on whether you are glass half full or glass half empty.
Opportunities are everywhere
While I find it amusing when market gyrations are unconsciously orchestrated by Feds comments, I never really bothered to time the market.
Common sense prevails, and we should not be too influenced by short-term headlines.
A lower interest rate will be beneficial to the financial market as a whole. And it will do less harm to the mortgage servicer!
That said, there are still many uncertainties happening around us.
The Red Sea attacks and uncertain oil prices could throw a wrench in not only inflation but also assurances that 2024 could be better than 2023.
A permanent reduction in interest rates simply removes one variable from the equation.
But if you're in it for the long haul, and miraculously sail through 2024, there's no reason the aforementioned asset classes can't do well!
