The Biggest Downside Risks For 2024

Exactly two months after the mood on Wall Street was apocalyptic thanks to the S&P getting dragged to a 5 month just around 4,100, with so-called experts predicting that a drop to the mid-3000s was only a matter of time, and other so-called experts telling their clients to forget about a year-end rally, everything has reversed and not only have we seen the fastest year-end rally in decades (one which caught everyone by surprise), but sentiment has flipped on its head with Goldman's top trader essentially rehashing FDR over the weekend, saying that "if there is A ‘caution sign’ out there as we turn the corner into 2024, it arguably the simple fact that there really are NO caution signs out there."

Let's refresh that one in March, shall we, when the Fed's liquidity-gushing reverse repo facility is drained to zero... but even without sarcasm, it doesn't take rocket surgery to realize that Goldman's hubris is unjustified as there are plenty of downside risks out there. Courtesy of BofA's derivatives traders here is a list of the biggest downside risks in store for markets in 2024.

Picking up where we left off on Christmas Eve (with "Will The Fed's Cuts In 2024 Reignite Inflation: Is Powell Repeating Arthur Burns' Mistakes"), the biggest question on everyone's mind is what happens if inflation returns and shoots higher, just in time for the Fed's credibility-crushing dovish pivot. Indeed with financial conditions now the easiest they have been since May 2022, and with Apollo's Torsten Slok warning that "with the Fed worrying less about inflation and more about growth, the risks are rising that easier financial conditions triggered by the Fed’s pivot could start another rise in inflation driven by higher prices on housing, labor, services, and goods"...