2023 is halfway over. Time flies, unfortunately. Just yesterday I was a day younger.
It was an eventful first half. There was a minor banking crisis in the US, which paradoxically helped set the stage for lower volatility and what, within two months, was a new bull market predicated on the promise of generative A.I.
Oh, and there was a mutiny in Russia, where a caterer-turned warlord led his private mercenary army up a highway towards Moscow before getting cold feet with less than 200 miles to go.
I could go on. Never a dull moment, although it sometimes seemed dull, what with equity volatility grinding lower and stocks closing June with a somnolent drift, or at least until Friday’s spot up / VIX up rally, which felt comparatively lively.
To mark the close of the first half (which, if past is precedent, will be followed immediately by the dawning of the second half), I thought it’d be useful to present the simple figure below, which is just a snapshot of YTD performance.
As you can see, everyone’s a winner except commodities. And Chinese assets. Raw materials are passé — until something else bad happens in eastern Europe, or until the next natural disaster. China is down and out — until Xi figures out a way to convince markets he’s serious about stimulus, and not so committed to the Mao reenactment.
Where to from here? Nobody knows. But if anyone did, it’d be Nomura’s Charlie McElligott. “This is what I’ve been calling the ‘animal spirits 2.0’ scenario,” he said Friday, of the recent run up in the Bloomberg Economic Surprise Index.
“The ‘positive wealth effect’ being created for US consumers between raging markets and now reaccelerating home values [could] re-stimulate consumer behavior alongside policy tightening that hasn’t yet conquered [hot] nominal GDP growth, a still ‘too-massive’ Fed balance sheet and remaining excess pandemic savings,” he went on, adding that any “further overshoot in the US data could act as a much-needed rate vol catalyst [for] a reversal in the current soft landing ‘Goldilocks’ macro scenario behind the powerful resumption of the short vol regime.”
