US stock markets continued to gain momentum as January progressed, reaching successive new record highs in the second half of the month as investor confidence in the central bank\u2019s ability to engineer a soft economic landing and reduce interest rates increased.<\/p>\n
That contrasted with South Africa, where the Reserve Bank\u2019s still cautious stance on inflation and interest rate cuts, concerns about government finances ahead of the budget in February, and the prospect of loadshedding continuing for years saw the local stock market lose ground.<\/p>\n
In the advanced economies, investors have tended to be more optimistic than central banks about when \u2013 and by how much \u2013 interest rates will decline in the year ahead. That continued in January and was most evident in the European Central Bank indicating that interest rate cuts could be expected from mid-year but investors immediately factoring in rate cuts as early as March.<\/p>\n
Historically, stock markets have typically gone through cycles of over optimism and excessive pessimism, driven by investor sentiment that becomes out of line with economic fundamentals.<\/p>\n
Investor behaviour in the last weeks of January suggests that investors in developed countries, especially in the US, may be over optimistic. Investors in the US expect interest rates to come down earlier and faster than the Fed is indicating, at a time when statistics are showing that the US economy is growing faster than expected.<\/p>\n
US growth came in at 3.3% versus an expected 2%. Unemployment rates remain at record lows and consumers are still spending. Faster growth risks spurring higher inflation \u2013 a risk central banks typically manage by keeping interest rates high.<\/p>\n
In contrast, South African investor sentiment looks better aligned with the global and domestic economic realities. The stock market is believed to offer significant value and, if history is anything to go by, less likely to fall off a cliff because it is more reflective of market fundamentals.<\/p>\n
The SA Reserve Bank highlighted the risks informing its decision to keep interest rates on hold in January and made it clear that interest rates won\u2019t be cut until the inflation rate is sustainably back in the middle of its target range (3% to 6%). It\u2019s this level-headedness that has kept South African investors firmly grounded in reality \u2013 an approach that should hold us in good stead in an environment of still-elevated risks this year.<\/p>\n
Disclaimer:<\/strong>\u00a0The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.<\/p>\n \u00a9 FinDotNews<\/p>\n","protected":false},"excerpt":{"rendered":" A tale of two economies US stock markets continued to gain momentum as January progressed, reaching successive new record highs in the second half of the month as investor confidence in the central bank\u2019s ability to engineer a soft economic landing and reduce interest rates increased. That contrasted with South Africa, where the Reserve Bank\u2019s […]<\/p>\n","protected":false},"author":101019,"featured_media":5175,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[59],"tags":[],"class_list":["post-5284","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-market-update"],"yoast_head":"\n