Financial market through the lens: 2024 investment strategies and expectations of rate cuts

19 January 2024 _ News

Financial market through the lens: 2024 investment strategies and expectations of rate cuts

Stefano Reali, Investment Director and Fund Manager at Pharus Asset Management, pointed out during an interview with Linea Mercati that the market is currently anticipating 6 to 7 rate cuts for 2024, but it will all depend on what the expectations will be regarding the performance of the economy. While most of the market is talking about a 'soft landing,' with even some talking about a 'no landing,' we cannot rule out a more significant slowdown scenario that could result in a recession.

According to Reali, the rate cut expected by the market, which many are beginning to see as accessible, seems instead consistent and credible. "To speak of a soft landing is a bit too optimistic," he says, "what we expect is a more pronounced slowdown, and the current expectations for the rate cut seem more than reasonable and credible to us."

Investment strategies

Answering the question on how they are distributing the weights in their portfolios, Pharus' Investment Director, notes a divergence of opinion from the general consensus. "On the bond side, where there is no unanimous consensus on cutting rates, our view is against it," he says. "We have a perspective of taking risks on the long end of the curve, acquiring duration in portfolios."

Choosing to focus on the long end of the bond curve, he explains, can help to forfeit attractive yield streams for many years to come. Moreover, it could offer a significant upside related to possible price appreciation should the rate cut materialise.

Expectations for the future

Finally, Stefano Reali argues that, given current economic trends and inflation, a rate cut in 2024 is largely taken for granted. "Putting flows in the portfolio and moving to the long end of the curve, we believe that in the course of the year this could be a correct choice for the investor."

In conclusion, while the market is preparing for challenges and opportunities related to the rate cut, investors are called upon to focus on the value, which has been created on the long end of the curve, without getting caught up in the emotionalism typical of the financial market.




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