Just two things matter for asset prices, BofA’s Michael Hartnett reminded investors, in the first 2024 installment of his popular weekly “Flow Show” series.

Those two things are positioning and new information or events with the potential to alter the trajectory of corporate profits and/or the price of money.

Valuations matter a lot too (buying extremely overvalued assets or assets that’ve appreciated well beyond most generally accepted valuation metrics, and doing so habitually, is a recipe for underperformance over long horizons versus someone who does the opposite), but I’d be contradicting myself if I didn’t agree with Hartnett. After all, it was just two days ago when I wrote that,

As we saw in 2023, trying to forecast asset prices based on what I’ll generously call macro-fundamental considerations is risky, and likely to become more so as global affairs and domestic politics get more complicated. More useful over near- and even medium-term horizons are flows and positioning.

So, yeah, positioning, flows and, for Nostradamus anyway, the successful prediction of events that might change investors’ expectations for corporate earnings and rates, are what count.

There’s been no shortage of “events” in 2024 so far. On the off chance you haven’t noticed, there’s a bloodbath going on the Mideast — a macabre melee.

“The markets have no heart,” though, and geopolitical tumult routinely fails to move the needle for most asset prices due to a lack of discernible transmission channels to profits and rates.

But there are a lot of so-called “known unknowns” in 2024 with the potential to impact corporate bottom lines and monetary policy deliberations. Hartnett walked through a hodgepodge of such events, ordered by month.

Here they are, as expounded by Hartnett, whose affinity for shorthand was on full display this week:

• January: Big month for Asia…Taiwan election Jan 13th & BoJ to end extreme monetary policies of YCC and NIRP Jan 22nd; biggest event likely Q1 US Treasury refunding announcement Jan 29th. Announcement Oct 30th was trigger for “everything rally” Q4 as yields sank from 5% to 4%; and yet possible government shutdown Jan 19th, US debt now >$34tn (up $1tn in 106 days!), govt spend >40% of GDP. Consensus expects $970bn Treasury borrowing Jan 29th. Fear of higher number = higher yields; our bonds in cyclical bull market within secular bear market.
• February: Russia/Ukraine 2-year anniversary on Feb 24th; geopolitical confrontation (& political polarization, social inequality) can be bullish…monetary & fiscal policy easier than macro warrants; 2024 a big election year…60% of GDP and 80% of market cap will have elections this year, 40% of global population; should need for Western politicians to calm geopolitics avert jump in oil prices…bullish for soft landing view as lower oil catalyst for H1’24 surprise of stronger non-US economic growth.
• March: US “Super Tuesday” Mar 5th but main event Mar 20th FOMC & 1st Fed rate cut (say BofA); market pricing in 150bps cuts in ’24, we predict 150 global rate cuts in ’24….Q4 rally predicated on Fed pivot but we say rate cuts likely driven by weaker growth and 1st rate cut likely peak asset price event; note some of biggest credit events have occurred when Fed cutting rates.
• April: Current probabilities for hard/soft/no landing are 20%/70%/10% according to Dec BofA Global FMS; by Apr 25th US Q1 GDP report the “landing” will be known; S&P500 EPS forecast to rise >5% in ’24 (SPX 4800 = 20x multiple) requires rise in ISM to 52; credit spread & stocks betting heavily on this outcome, and labor market remains strong; but fascinating to note if ISM <50 through April would be longest contraction period since ’00-’02, and through May = longest since ’81-’83.
• May: Excluding the Magnificent Seven, S&P500 would have ended 2023 @ 4175…Magnificent Seven accounted for 2/3 of ’23 return; investors love the Big Tech “moats,” ability to maintain ‘monopolistic ability to protect margins, market share, pricing power; so Google antitrust trial closing arguments May 1st-3rd, 1st of three anti-trust rulings that could directly impact Google & Meta monopolistic positions., and erode secular case for Big Tech.
• June: Annual OPEC Ministerial Meeting Jun 1st, EU parliamentary elections Jun 6-9th, G7 summit (Jun 13th); Fed forecast to deliver 2nd rate cut and end Quantitative Tightening on Jun 12th (leaving Fed balance sheet at floor of $7tn…was $4tn in Jan’20); Fed policy reason US dollar on backfoot recent weeks…would expect downside to be fully priced by mid-year; key for bulls is US$ depreciation healthy in H1 i.e. driven by easier Fed policy & reduced US vs RoW growth differential.
• July: Republican National Convention Milwaukee Jul 15th; but watch where US yield curve is by July… 3m-10s yield curve is currently -141bps, has been inverted 15 months; if still inverted by July, duration of inversion would be longest since…run-up to Oct’29 Great Depression crash (19 months)…gulp.
• August: August best month for US equities in 4th year of presidential cycle (up 3% since 1872); Democratic National Convention in Chicago on Aug 19th; we say politics already impacting policy & markets but certainly will by Aug…we watching unemployment in key swing states (Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania, Wisconsin) and note initial jobless claims in Pennsylvania highest since Jul’21; so rare low presidential approval rating at a time of low unemployment; could mean more policy stimulus, could also trigger onset of volatility.
• September: September likely peak in MMF AUM (currently $6tn)…our analysis shows i) inflows to MMFs in ’23 not abnormally high (25% rise vs avg 33% jump annualized in prior 4 cycles), ii) current inflow episode to MMFs to end in Sep’24 (MMF AUM peak on average 14 months after last Fed hike), iii) outflows from MMFs begin Mar’25 (12 months after first Fed cut).
• October: BRICS Summit scheduled to be held in Kazan, Russia…1st summit in with expanded members (Saudi Arabia, UAE, Iran, Argentina, Egypt, Ethiopia joined Brazil Russia, India, China, South Africa); new ‘BRICS 11’ = 51% of global CO2 emissions, 46% of population, 45% of energy consumption, 45% of oil production, 37% of GDP (at purchasing power parity)… yet <25% of global market cap, and EM equities also at 52-year lows vs US equities…buy EM, sell US in ’24.
• November: US election ; conventional wisdom is elections messy but don’t affect markets too much…this was clearly not the case in 2016 & 2020 elections when stocks surged >5% in Nov (only time that’s happened since WW2 bar Reagan election 1980) and were up 9-14% following 3 months.
• December: No events needed… best month for US stocks (average gain 1.3% since 1928) as proved once again in ’23, as stocks surged to near all-time highs.