The inspiration for that article was the annual ’10 Surprises’ that Byron Wein wrote for three decades. The list was one of the most widely read investment missives, giving his predictions for financial markets and the global economy which he believed had a higher probability of occurring in the coming year, yet were not widely anticipated by the average investor. While the majority of such surprises did not occur (and thus are not investment advice), his insights, derived from a deep understanding of market dynamics and economic indicators, aimed to challenge conventional wisdom and provoke deeper thought among investors.  

The few that did occur over the years often proved to be some of the more significant events. In his 10 surprises for 2023 he correctly foresaw that US real (after inflation) rates turn positive, modern monetary theory becomes discredited as deficits became inflationary, and that dollar investors could take advantage of a weak yen to invest in Japan.

Byron passed away in October, so in tribute I thought I would write my own list of potential surprises for next year.

1. Global equities post double digit returns for the year. There is still a lot of caution from investors; over one trillion US dollars have gone into money market funds, the world’s most boring investment vehicle; this is the highest inflow in history. A surprise would be that, despite volatility brought on by what will likely be a hotly contested US presidential election, this wall of cash climbs the wall of worry and is redeployed into equities as fears of a recession recede.  All the neglected sectors that have underperformed in 2023 (basically anything non-tech) catch up as the rally broadens, creating the biggest FOMO trade since the post-COVID rally.
2. The interest rate hike cycle ends, but instead of cuts, rates stay at 5 per cent for most of the year. Counterintuitively, this is a bullish scenario for stocks.  The period from the last Fed rate hike to the first cut and produces an average 5% gain, and in almost half of the observations gains have been more than 12%. Instead after the first rate cut to the eventual market’s low, on average it has been a loss of -23% over 30 weeks. Historically the start of a rate cut cycle tends to be negative for equities.
3. Gold becomes the best performing asset of 2024.  Central banks have been big buyers of gold for years, especially the larger oil producing countries. The UAE announced pricing of oil in Chinese Yuan, as part of the global economy moves away from the petrodollar global system that has been in place for the last fifty years. 
4. Ukraine and Middle East conflicts end. It is telling that oil prices continue to act very weak, at the lowest point in four months, despite talks of OPEC production cuts. US politicians will find it difficult in an election year to authorize continued deficits to support military conflict overseas.
5. Uranium extends this year’s price gains as governments realise that intermittent clean energy needs a backup source, and the world turns less negative on the risks of nuclear power plants.  
6. China equities rally. After eight consecutive years of large underperformance, the government finally realises that it needs to stimulate the economy and provide a backstop to the country’s real estate problems, following the example of the US and Europe to do ‘whatever it takes’.
7. Japanese equities make a new all-time highs. Japan equities are -16 per cent below their all time high in 1989. The return of global inflation ends BOJ’s zero interest rate policy, ending decades of deflation. 
8. Latin American assets (both equities and bonds) outperform. Brazil’s stock market has gained +24 per cent this year, but hardly anyone is paying attention as allocations by global investors are near zero, even as EPS has gained 50 per cent in the last two years, while stock prices are flat. This has caused P/Es to drop to drop to single digits, while paying an attractive dividend yield of 5 per cent. Argentina’s new president is a self-described ‘anarcho-capitalist’ who is looking to dollarize his country, and has spoken about abolishing the country’s central bank. On the bond side, LatAm yields are far above inflation, and their central banks hiked rates faster than anybody else, and have gotten inflation under control.
9. EV batteries get shaken up by alternatives to lithium-ion.  Lithium spot prices have already dropped from 1200 to 340.  Shares of lithium mining companies have lost more than half of their value in the last 12 months. Lithium battery alternatives are emerging, such as sodium-ion batteries developed by a private company, that do not need rare metals.
10. One key risk for 2024: consensus has shifted from a recession in 2023 which never happened, to a soft landing in 2024.  A significant data point suggests a significant risk to this outlook: US housing confidence. Real estate tends to lead stock market prices, as most people’s wealth is concentrated in the value of their home. As China is learning, weak real estate prices cause consumers to pull back on spending, accelerating an economic slowdown. The US homebuilder confidence index has posted four consecutive months of negative prints, inching closer to the level of Q4 2022 when stock markets bottomed.  This index has a strong tendency to lead equity performance, often topping and bottoming before equities do. A drop below last year’s low would be a bearish indicator.