The ETF Portfolio Strategist: 01 JAN 2024
Trend Watch: Global Markets & Portfolio Strategy Benchmarks
The year that just ended was kind to globally diversified portfolios, but markets in 2024 closed on a weak note. It’s premature to read too much into a soft finish to a strong year, but 2025 could be bring significant changes on multiple fronts and so it’s reasonable to downshift expectations and dial down risk allocations if you’re not prepared to stand firm for what could be a rocky start to the year.
Looking backward, by contrast, reminds that 2024 dispensed a bullish run for our usual set of global asset allocation ETFs, led by the aggressive mix (AOA), which rose 13.5% for the year vs. 6.6% for the conservative allocation (AOK).
The party began to fade in the final run of December. The Global Trend Indicator (a summary of the bias for all the ETFs listed above) slumped at 2024’s close. Using the GTI’s 10- and 50-day averages as a guide shows the indicator at its weakest reading in months.
A similar tale is told in the GTI Drawdown Risk Index. The current reading shows an ongoing rise in risk after an extended period of nil risk (i.e., 0).
The widespread green that recently graced our Signal scores has evaporated, leaving only commodities (GSG) with a strong upside trend.
US equities sectors are now posting a mixed/neutral profile overall.
The key question is how will markets fare once Trump 2.0 kicks in. Everyone’s has a forecast, but no one really has a clue for the simple reason that there are many moving parts and a complex global feedback loop bound up with the analytics.
For what it’s worth, I expect markets to churn for the next several weeks until we’re on the other side of the Jan. 20 inauguartion. Once the president-elect has settled in, we’ll be looking for how a range of expected policy changes evolve and how markets react.
Arguably the first issue that markets will focus on: how will Trump 2.0 policy changes affect inflation? Once there’s a clearer sense of how Trump policies on immigration, tariffs, tax cuts and deregulation will unfold in the year ahead, revising/managing expectations on inflation (and, by extension, Fed policy) will become a bit clearer.
For the next several weeks, however, cool your jets. Markets may whirl and swivel, but the back and forth will likely be more noise than signal until the post-Jan. 20 era comes into sharper focus.
Meantime, Happy New Year! ■