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Almost as if a switch was pressed, the Nasdaq Composite – which encapsulates almost all Nasdaq-listed stocks – collapsed 1.63% in the first day of trading from the highs of 2023. This was the 4th worst start to a new year since 1972 and only the 5th time that it has started a year with a one-day drop of more than 1.5%. In the first week of the year, the index fell another 1.64%.
Within the “tech heavy” Nasdaq-100, pharmaceuticals ruled the roost in terms of momentum; tech was virtually nowhere to be seen in the Top 25 list – a massive shift in trends seen in Q3 and Q4 of 2023.
In holistic terms, the index isn’t rising: the one-day drop for the Nasdaq-100 in the new year was 1.68%. As of the first week of the year, the index shed another 1.44%.
The “broad market” S&P 500 was relatively muted: its one-day drop in the new year was 0.57% and it dropped another 0.96% in the first week of the year. Pharmaceuticals and financial services ruled the roost in the Top 25 list.
The biggest drop over the week, however, was witnessed in the small-cap Russell 2000 which pulled back by 3.1%. Its one-day drop in the new year was 0.7%. The top gainers in this index were almost exclusively pharmaceutical companies.
Whether these early trends portend general market directionality in the year to come might be aided (or hindered) by overall institutional outlook for the year, which ranges from optimistic to neutral.
Institutional Outlook
In its outlook for 2024, British investment bank Barclays opined1 that 2024 will be a particularly muddled year for the Western Hemisphere.
While the Hemisphere is expected to see lower year-on-year Consumer Price Index (CPI) inflation, the United States will see a 17% increase in the unemployment rate along with a 50% decrease in private consumption. No region – be it the U.S., the U.K. or the Continent – will experience GDP growth.
The drop in consumption is a particularly ominous indicator for the technology sector: without significant buy-ins, forward valuations and investor convictions get shaky. As the Blackrock Investment Institute2 indicated, “tech” enjoyed a conviction premium throughout 2023 and ended the year with a nearly 155% outperformance against the “broad market”.
Given that CPI inflation is expected to drop, that drop in wage growth might have a certain rationale. Then why the drop in personal consumption? This is a more complex and multi-factored issue that is not certainly helped by the fact that the average U.S. consumer/resident has been saddled with rising costs far in excess of wage growth for well over a decade now. The “weight of macro consequences” is a slow-moving iceberg seldom addressable with simple measures.
As the U.S. prepares for arguably one of the most contentious elections in modern history, economists and forecasters have been particularly wary of making prognostications, especially after market cool-offs and sector rotations didn’t materialize as expected in 2023. Some have substituted the term “recession” with musings on whether a “landing” will be “hard” or “soft”. Presently, consensus is inching towards a “soft landing” over the hard. However, Germany’s Allianz Global Investors – a subsidiary of the world’s largest insurance company – noted in its outlook4 that forecasters’ consensus opinions have been wrong on virtually every recession since the eighties:
One feature that stands out is that nearly every recessionary event was almost immediately preceded by a low probability consensus of said recession occurring.
Another assumed truism is that an “American” recession tends to spell doom for the global market and economy as well. In its outlook for 2024, BNY Mellon outlines5 that this may not happen. After a high water mark around 2010 – itself marking the last significant recessionary event (the Global Financial Crisis (GFC)) – Emerging Markets (EM) have been increasingly uncoupled from Developed Markets (DM).
This highlights an often-stated yet frequently-derided trend broadly referred to as “deglobalization”. In effect, the notion of a “global driver” is increasingly less viable.
A Change in the Air
“Deglobalization” is merely one of many indicators that classical models are being challenged. One “classic” is the bond-equities relationship which most investors broadly understand as a “flight to safety” paradigm from equities to bonds when the former looks shaky and vice versa when the outlook has stabilized. Barclays asserted that bond-equity correlations, a key measure for asset allocation strategies, have shot up to levels last seen twenty years ago (i.e. circa the dot-com bubble).
At current levels of correlation, the bank states that bonds do not act as the shock absorbers to equities as they have done in the past.
Another “classic model” being challenged is an investor favourite: the “buy and hold”. As per studies by the BlackRock Investment Institute, investors who get “granular” with their portfolio allocations have tended to thrive over those with “static” portfolios.
With a wide arsenal of tools and strategies to help outperform static portfolios, BlackRock asserts that investment expertise is likely to give portfolios an edge by enabling more effective core allocations, implementing “alpha” ideas and hedging risk.
Key Takeaways
In the 2024 market outlook article published last month6, it was opined that AI, for better or for worse is here to stay and will continue to have a strong influence in investor conviction at least in the near- to mid-term. While it’s certainly well within reason to hold forth that America’s tech stocks being heavily overvalued relative to the rest of the market is a headwind, AI-related developments will continue to be regarded as tailwinds for the constituents of the sector. A similar tilt in favour is expected to be writ large in the private market as well.
With deeply-held notions being challenged (or even potentially altered forever), it likely would pay – more so now than ever – if investors were to eschew the hype around favourites, examine closely ideas considered to be “fundamental” and explore new strategies available. Professional investors should consider the potential inherent within tactical trading using leveraged ETPs. Click here for a complete list of Leverage Shares’ products.
Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.
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The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.
This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.
Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.
This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
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Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
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Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
Leverage Investment
Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.
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Terms and Conditions
Notice
If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.
If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.
Risk Warnings
The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.
This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.
Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.
This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
United States Visitors
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.
Persons accessing this website in the European Economic Area
Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
Exclusion of Liability
Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
Leverage Investment
Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.
Cookies
Leverage Shares Management Company may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes (click here for more information). These are statistical data about users’ browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking ‘I agree’ below, you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps Leverage Shares Company provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.
This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2.
By clicking you agree to the Terms and Conditions displayed.
