By Andrew Sheets, Chief Cross-Asset Strategist at Morgan Stanley
Read the paper, attend a conference or speak to a colleague, and it's reasonable to conclude that this is a 'macro' market. Geopolitics, inflation, central bank policy and the fiscal outlook dominate headlines and are seen as key drivers of what lies ahead. But there’s a risk to thinking this way. For all the sound and fury coming from the macro, 2024 remains an unusually micro market.
Before we get into this debate, let’s define our terms. We think that a reasonable definition of a ‘macro-driven’ market is one with high correlation, where lots of assets are following the same macro-driven measures like oil, interest rates or policy expectations. And these measures have been in motion. Oil prices are up 14% this year. Expectations for the number of Fed rate cuts in 2024 have swung from seven to fewer than two. Interest rates have risen sharply. Even on Thursday, CNBC's chyron blared "rate fears rock markets".
