Luckbox digest

Bonds, Volatility and Equity Exposures

By:James Melton

A weekly look inside Luckbox magazine

Quality bonds could have a good year

One of the most basic axioms on Wall Street is that when interest rates decline, bonds prices rise. Current projections indicate interest rates will fall in 2024. Considering that backdrop, bonds look more attractive heading into the new year.

Actual and forecast U.S. inflation

Market prognosticators don't always accurately predict what comes to pass. But bond market tends to be a bit more predictable than the stock market, especially when it hits an extreme. For example, heading into the start of the recent rate-hike cycle, many bond analysts correctly predicted bond prices would slide as the Federal Reserve tightened U.S. monetary policy.

Bond investors may elect to focus on higher-quality companies with long histories of successfully paying their debts. High-quality corporate debt is typically referred to as investment grade. Read the whole story.

A market volatility rebound could be on the way

Market volatility tends to bottom out during December. Now, things could heat up a bit.

According to historical data, January and February are among the most volatile months on the calendar, second only to September and October. The 2024 trading year has the potential to be more volatile than average because of the November elections.

seasonal volatility

Years with major elections have been more volatile than other years, on average. That’s largely because uncertainty tends to breed volatility in the markets.

Certainly, there’s no guarantee that 2024 will be a crazy trading year, but according to research conducted by Hamilton Place Strategies, it’s virtually assured implied volatility will steadily rise next year. Read the whole story.

Is it time to trim equity exposure?

With major equity indexes notching fresh all-time highs, investors and traders may want to consider trimming their exposure to equities in 2024.

S&P 500 notched a fresh all time high
Source: Bloomberg, RBC GAM. Data as of Jan. 1, 1950 to Dec. 31, 2020.

Much like 52-week highs, all-time highs provide investors an attractive opportunity to reduce exposure. And building a cash reserve enables investors and traders to capitalize on opportunities during future corrections in the financial markets. Read the whole story.

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James Melton is managing editor of Luckbox magazine.

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