Insider Finance - Business - Insider Today: An overconfident market?

December 14, 2023 • 6 min read

with Dan DeFrancesco

Hi! Don’t throw the baby out with the bath water, and don’t blow up your apartment trying to kill a single cockroach.  

In today’s big story, we’re looking at why a slew of good news for the stock market doesn’t guarantee a huge 2024. 

What’s on deck:

But first, go big or go home?

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The big story

Cocky or confident

Investors love it when a plan comes together, and the Fed is finally playing its part in Wall Street’s bid for a big 2024.

Jerome Powell & co. announced they’d continue to hold off on raising interest rates. But the fun didn’t stop there. The fight with inflation seems to be ending, as the Fed is projecting three rate cuts planned for 2024. 

The market rejoiced, with the Dow Jones Industrial Average hitting an all-time high. A pause in rate hikes is one thing, but an acknowledgment of incoming cuts? Let the good times roll in 2024! 

But at least one Wall Street bank has been wondering if the market is getting overconfident. UBS cited the ultra-low levels of the VIX index, a measure of expected stock volatility over the next 30 days, as an example of investors getting ahead of themselves.

"At present, markets are priced for this optimal outcome," strategists wrote in a note last week.

"The VIX index of implied US equity market volatility, a popular measure of fear in markets, is close to historical lows – pointing to a degree of over-confidence, in our view," they added.

Getty Images

“The Dow at an all-time high, rate cuts are coming, and you’re pessimistic? You must be a blast at parties, Dan.” 

I don’t mean to come off like a spoilsport, but there are reasons to hold off on penciling in those 2024 returns. 

For one, Fed Chair Powell made it clear the projected 2024 cuts are just that, a projection. 

“Inflation is still too high, ongoing progress in bringing it down is not assured, and the path forward is uncertain,” Powell said in his opening statement Wednesday. 

Translation: Don’t count your chickens before they hatch. 

And inflation is a thing we all might have to deal with for the foreseeable future. That’s the take from some market experts, including Wall Street guru Jim Grant, who pointed out that the purchasing power we lost from inflation isn’t coming back.  

And, as we’ve covered before, rate cuts don’t necessarily equate to instant gratification for the market.

So you might want to hold off on those big spending plans for 2024, at least for a little longer.

3 things in

Markets

🔔 Before the opening bell: US stock futures rise early Thursday after the Fed  signaled interest-rate cuts next year.

Kevin Dietsch/Getty Images

1. What’s bad for Biden is good for the markets. A note from Ned Davis Research details how a low approval rating for the US president has been coupled with better market returns. When the Gallup Poll Presidential Approval Rating is between 35% and 50%, the Dow Jones has delivered an average annual return of 9.9% compared to 2.4% when the approval rating is above 65%. 

2. How to build a massive hedge fund. Bobby Jain is expected to have the largest-ever hedge fund launch. From trading style to staffing, here’s what the longtime Millennium and Credit Suisse executive is telling investors ahead of the fund’s summer launch. 

3. The rent is not too damn high. The US median asking rent for November saw a 2.1% year-over-year decline, according to Redfin. That’s the biggest drop since February 2020, and a sign that renters might finally be getting a leg up on landlords. 

3 things in

Tech

Justin Sullivan/Getty Images

1. Is it better to be feared or loved? Sam Altman is both. The OpenAI CEO has leadership qualities that led some to quit in solidarity during his ouster, but others find him impatient, abrupt, and a bit superior. OpenAI insiders describe how Altman runs things. 

2. What the VCs are saying about 2024 in tech. AI startups will get a harder look. The IPO market will stay quiet. There will be another startup extinction moment. Large players will go on a shopping spree. These are just some of the trends that will dominate 2024, according to venture capitalists from over 30 firms. Check them all out here. 

3. Apple’s beefing up security on the iPhone. Here's how. The tech giant is using location data to deter thieves trying to change passwords or update security settings on a stolen phone. The new feature, Stolen Device Protection, will require a user’s biometric information if the phone is not in a recognizable location for the user, like a home. 

3 things in

Business

Hannah Gullixson/Netflix, Aurelio Lopez/Lopez, Brittinee Royes/Jerome Shaw, Max Elins/Michael Elins, Tyler Le/BI

1. Meet Hollywood’s rising stars. Business Insider identified the top up-and-comers shaping the entertainment industry. Meet 25 young executives identifying, producing, and managing fascinating stories for the big and small screen at top companies like Netflix, Disney, and Warner Bros. TV.

2. TikTok has the news Gen Z can use. The popular app is becoming the generation’s go-to source for news, whether it's news commentary influencers or on-the-ground “citizen journalists.” It’s the latest shift for an industry that’s already struggling to stay afloat. 

3. The first president of the Amazon Labor Union could be pushed out the door. Chris Smalls, a former Amazon warehouse worker who helped lead unionization efforts, has faced internal criticism for being more concerned with consolidating power than addressing union members’ needs. A new settlement could now see him voted out. 

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The Insider Today team

Dan DeFrancesco, deputy editor and anchor, in New York City. Diamond Naga Siu, senior reporter, in San Diego. Hallam Bullock, editor, in London. Lisa Ryan, executive editor, in New York City.

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