There is always uncertainty in markets, and there will always be difficult asset allocation decisions that investors must make. However, process-driven macro strategies should be able to lean into this uncertainty to generate positive performance in any market environment.
Policy and politics should be at the heart of every macro strategy – they drive macroeconomics, which drives price action. And in 2024, we expect a lot of policy decision and political upheaval.
In the US, the presidential election will be contested by Democrat incumbent Joe Biden and the possible return of Donald Trump for the Republicans. Meanwhile, there have been growing concerns around fiscal policy, as US government budget deficits have ballooned in recent years.
There is also the potential for blow-ups in the corporate debt space. These events tend to happen more frequently at this point of the economic cycle. When policy becomes more restrictive, we see which companies are exposed.
Internationally, there are ongoing issues that will continue to impact global markets. China’s retreat from the international financial system, a stalemate in Russia’s war against Ukraine and the conflict between Israel and Hamas are just some of the geopolitical themes that could feature prominently in 2024.
Finally, the ongoing transition to renewable energy sources and progress toward net zero carbon emission targets will have a considerable, and possibly disruptive, impact on economies and energy infrastructure.
When combined with existing concerns about inflation, economic growth, and labour markets, the level of uncertainty in markets can seem overwhelming. At RBC BlueBay, we believe all this uncertainty creates ‘capturable volatility’ opportunities for alpha due to heightened volatility in credit markets.