George Gammon: Here’s the Truth About 2024 (No One Is Expecting This)
Investors and analysts are bullish, following the market’s recent rally. However, going into 2024, a number of factors could play out that lead to a big change in the market’s price.
The biggest factor comes from outside the stock market itself. Instead, it’s the credit market. That’s because last year’s banking crisis got a quick bandage fix, but the underlying problems still remain. And it could start to unravel as early as March.
Last March, several banks failed. Depositors rushed to pull money out. Banks had been investing in U.S. Treasury bonds, a safe asset. However, given rising interest rates, long-dated bonds were worth less than their face value.
That duration issue with the bonds created the insolvency problem. The result? The second and third largest bank failures in U.S. history. The Fed fixed it with a temporary facility to buy bonds from banks at face value. That facility had a one-year expiration date.
Since March, interest rates have trended higher. And there’s no sign that banks have moved to fix their duration issue.
In the meantime, sharply rising interest rates have led to a decline in M2 money growth. It’s only the first time since the 1930s that the U.S. economy has had such a pullback. That could mean less liquidity available to meet the next crisis.
Investors should look to scale out of financial stocks at the start of the year. A banking panic could lead to some big selloffs in that space.