Both risk and safe-haven assets delivered high returns in November, but investors and analysts may have underestimated the challenges ahead.
November 2023 will impress investors. and high-yield bonds and other risk assets broughtHighReturns, andEven assets that have traditionally been negatively correlated with them, such as U.S. Treasuries and Treasuries, have experienced significant growth.
During the month, the Nasdaq-100 Index (NDX)**107%, and not limited to a handful of outstanding performers. The S&P 500 (SPX), the Dow Jones Industrial Average (DJI) and the Small Companies Russell 2000 (RUT) were all up nearly 9%. Other risk assets, including high-yield bonds, have seen similarly strong growth. It is worth noting thatKnown as Wall StreetFear indexThe VIX index fell to its lowest level in nearly four yearsAnd fell below 13 several times this month.
Even though November as a whole is a month with a higher risk appetite for funds, butSafe-haven assets also performed well***2.7%, the *** of the 10-year Treasury note led to a pullback in yields.
Mohamed A., Chief Economist at Allianz, Mohamed AEl-Erian believes that the high returns in November this year were driven by four key factors:"Goldilocks" styleeconomic dataTreasury bondsYieldDecline, oil prices** as wellIt has been beforeWait and seeofCashFinally a lot of investmentDisposition.
First, most of the U.S. economic data released last month unanimously supported the market's view that the U.S. economy will have a soft landing, that is, reduce inflation while avoiding a significant slowdown.
Second, Treasury yields have fallen significantly, which has reduced the cost of borrowing for households, companies and entities, and the cost of funds and availability have improved significantly. Traders are betting that central banks such as the Federal Reserve have not only finished raising interest rates, but will start cutting them next year.
Third, international oil prices** have alleviated concerns about stagflation and strengthened the positive effect of the first two factors. Lower energy** means less cost pressure on businesses and households, increasing their spending flexibility.
Finally, idle funds are heavily reallocated to products with greater credit and duration risk. According to Bloomberg, ETFs that track high-yield bonds saw a record $12 billion in inflows. Companies are scrambling to issue new bonds to finance investments and build reserves. Investors have even embraced the much-maligned AT1 bonds that have come a long way since the Credit Suisse incident.
Therefore,More and more analystsOptimisticThe performance of the market and the global economy in 2024. After all, interest rates, credit and liquidity are all three major market risks, which is a good thing for almost all asset classes.
However, Erian points out that good wishes for the economy and markets cannot be achieved automatically, especially given the current economic, financial, political and geopolitical environment.
He thinksPolicymakers are inResistThe "last mile" of inflationStillFacedNot sureBarrier. The OECD warns that now is the hardest part of the process, but investment banks such as Goldman Sachs Group Inc. claim that this is the easiest part. At the same time,Central banksStill looking for a neutral rate at which it is. And in terms of growth, if there is no further push for reforms,The economic engine may stallEspecially in the face of reduced savings and other headwinds. Many economies have not done enough to fundamentally improve productivity growth.
Yerian also believes that there are two other problems with the asset. First, can high valuations be sustained with low inflation and continued strong growth? Second, in the face of a large deficit and the need to refinance existing debt at a fairly high interest rate, will there be enough buyers to absorb a large amount of new bond in the future?