Stocks Remain the Asset Class of Choice in Face of Mounting Geopolitical Risks
Amid an unsettled global landscape marked by mounting geopolitical risks, Beat Wittmann, a partner at Porta Advisors, expressed confidence that stocks will continue to be the “asset class of choice.” Wittmann dismissed concerns about the upcoming U.S. election, stating that its outcome would be “pretty irrelevant” for the markets.
The year 2024 presents unprecedented elections around the world, occurring amid several large-scale conflicts at risk of further escalation. Wittmann acknowledged that navigating politics in such a landscape would remain difficult and confusing. However, he remained optimistic about the market’s resilience in the face of these challenges.
Wittmann highlighted two potential transmission mechanisms for geopolitical events affecting asset prices: energy prices and international trade. Despite ongoing trouble in the Middle East and Eastern Europe, Wittmann noted that the impact on energy prices and trade routes has been somewhat limited.
Despite continued geopolitical tensions, markets have become accustomed to such challenges over the last five years. This suggests that the impact on asset prices of any further adverse developments would be limited, according to Wittmann.
While geopolitical risks persist, last year’s market performance offers support for the resilience of stocks. Notably, the S&P 500 gained 24% in 2023, despite ongoing geopolitical issues. However, concerns about the concentration risk posed by the outstanding performance of mega-cap tech stocks have raised some caution among investors.
Wittmann acknowledged the risk but remained bullish about broader upside potential in stocks, emphasizing stock-specific factors.
The conversation also touched upon the role of technology stocks in the market, with Wittmann pointing out the potential for a market “melt-up” driven by technology. In addition, monetary policy played a critical role in driving the market rally at the end of the year. The U.S. Federal Reserve’s plan for at least three interest rate cuts in 2024 provided a significant boost to high-growth stocks.
Looking ahead, Wittmann identified the risk of inflation proving stickier than expected due to unforeseen geopolitical developments as a potential challenge to market momentum. However, he contended that this would pose a problem primarily for fixed income and high-growth stocks, while being positive for value stocks.
Regarding the upcoming U.S. election, Wittmann downplayed its significance for the markets, stressing that the strength and dominance of the U.S. economy would limit the surprise impact of any outcomes.
In conclusion, Wittmann’s outlook emphasized the resilience of the stock market in the face of geopolitical risks and the potential for a market “melt-up” driven by technology. Despite ongoing challenges, he expressed confidence in the continued preference for stocks as the asset class of choice.
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