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Market Comment - March

The last six months provided excitement of the virtues of simply staying invested in equity market at all times, as timing market moves makes no sense, given market whims and behavioral biases The bullish run in major stock indices has been persistent in 2024 leading to glorious extrapolation of the past Price targets for the S&P 500 getting hiked in the financial press, with some pundits claiming the index will reach 7000 or even 10000 points in the next couple of years A financial podcast suggested, the German Dax will reach 40000 points in the next five years New price highs above the 2021 bull market peak have markedly swelled bullish sentiment Analyst types are now rushing to make insanely bullish projections for equity indices This bulge of optimism is a warning sign, that caution is warranted At the same time, it is worth mentioning that adjusted for inflation, most equity market indices have barely broken previous all time highs During the past 6 months, a resilient economy and abundant liquidity, as previously mentioned, from all kind of sources, coupled with the hype in artificial intelligence, have been the main driver for rising stock prices While some companies, especially Meta, continue to hail the AI future, we find it mostly delusional Mark Zuckerberg in an interview explained, how AI can fix everything, from incurable diseases to climate change Currently, the CEO of Meta could provide only one example, how he uses AI He uses it for his toaster The USD 17 billion capex of Meta that went into Nvidia chips spending has not been deployed into the company’s operations Some analysts claim that the energy infrastructure in the US is currently not sufficient to provide enough energy One could come up with the conclusion, that we are seeing overinvestments in the tech sector and not enough spending in energy and infrastructure projects The market may have started to agree with the latest, as the technology sector started to underperform, while the materials and energy sector began to outperform Number crunchers suddenly realize that the infrastructure needed to implement AI, will demand a stunning amount of Copper While the hype in ESG has waned, it is resilient and commodity investments remain unloved This could lead to a scarcity in some commodities as production cannot keep up with demand US data centers are expected to grow by 50 until 2030 If so, we will witness an unprecedented rise in demand for electricity Meanwhile, the global debt burden continues to grow, especially in the US, where the government continues to project an annual budget deficit of around 6 If the US Central Bank is unable to cut rates substantially, it will lead to interest payments of USD 1600 billion in 2024 The resilience of inflation will become a problem ..“Higher for longer” will also mean, that the Commercial Real Estate Market, as well as Regional Banks could get hit again The Bank Term Funding Program has ended, and the Repo Facility is almost empty While the global economy remains in a good shape, the next couple of months could bring us the market volatility the “buy and hold” crowd has avoided since October According to our research, liquidity has been mostly drained from the system, which could lead to a bumpy road for equity markets in the next couple of weeks The Presidential Election Year Cycle agrees with this Nevertheless, there are no signs that the market sees a recession in the foreseeable future.

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