InvestMacro

By Shuang-Ye Wu, University of Dayton 

National weather analysts released their 2023 billion-dollar disasters list on Jan. 9, just as 2024 was getting off to a ferocious start. A blizzard was sweeping across across the Plains and Midwest, and the South and East faced flood risks from extreme downpours.

The U.S. set an unwelcome record for weather and climate disasters in 2023, with 28 disasters that exceeded more than US$1 billion in damage each.

While it wasn’t the most expensive year overall – the costliest years included multiple hurricane strikes – it had the highest number of billion-dollar storms, floods, droughts and fires of any year since counting began in 1980, with six more than any other year, accounting for inflation.

The year’s most expensive disaster started with an unprecedented heat wave that sat over Texas for weeks over the summer and then spread into the South and Midwest, helping fuel a destructive drought. The extreme heat and lack of rain dried up fields, forced ranchers to sell off livestock and restricted commerce on the Mississippi River, causing about US$14.5 billion in damage, according to the National Oceanic and Atmospheric Administration’s conservative estimates.

Extreme dryness in Hawaii contributed to another multi-billion-dollar disaster as it fueled devastating wildfires that destroyed Lahaina, Hawaii, in August.

Other billion-dollar disasters included Hurricane Idalia, which hit Florida in August; floods in the Northeast and California; and nearly two dozen other severe storms across the country. States in a swath from Texas to Ohio were hit by multiple billion-dollar storms.

El Niño played a role in some of these disasters, but at the root of the world’s increasingly frequent extreme heat and weather is global warming. The year 2023 was the hottest on record globally and the fifth warmest in the U.S.

I am an atmospheric scientist who studies the changing climate. Here’s a quick look at what global warming has to do with wildfires, storms and other weather and climate disasters.

Dangerous heat waves and devastating wildfires

When greenhouse gases, such as carbon dioxide from vehicles and power plants, accumulate in the atmosphere, they act like a thermal blanket that warms the planet.

These gases let in high-energy solar radiation while absorbing outgoing low-energy radiation in the form of heat from the Earth. The energy imbalance at the Earth’s surface gradually increases the surface temperature of the land and oceans.

The most direct consequence of this warming is more days with abnormally high temperatures, as large parts of the country saw in 2023.

Phoenix went 30 days with daily high temperatures at 110 F (43.3 C) or higher and recorded its highest minimum nighttime temperature, with temperatures on July 19 never falling below 97 F (36.1 C).

Although heat waves result from weather fluctuations, global warming has raised the baseline, making heat waves more frequent, more intense and longer-lasting.

That heat also fuels wildfires.

Increased evaporation removes more moisture from the ground, drying out soil, grasses and other organic material, which creates favorable conditions for wildfires. All it takes is a lightning strike or spark from a power line to start a blaze.

How global warming fuels extreme storms

As more heat is stored as energy in the atmosphere and oceans, it doesn’t just increase the temperature – it can also increase the amount of water vapor in the atmosphere.

When that water vapor condenses to liquid and falls as rain, it releases a large amount of energy. This is called latent heat, and it is the main fuel for all storm systems. When temperatures are higher and the atmosphere has more moisture, that additional energy can fuel stronger, longer-lasting storms.

Tropical storms are similarly fueled by latent heat coming from warm ocean water. That is why they only form when the sea surface temperature reaches a critical level of around 80 F (27 C).

With 90% of the excess heat from global warming being absorbed by the ocean, there has been a significant increase in the global sea surface temperature, including record-breaking levels in 2023.

Higher sea surface temperatures can lead to stronger hurricanes, longer hurricane seasons and the faster intensification of tropical storms.

Cold snaps have global warming connections, too

It might seem counterintuitive, but global warming can also contribute to cold snaps in the U.S. That’s because it alters the general circulation of Earth’s atmosphere.

The Earth’s atmosphere is constantly moving in large-scale circulation patterns in the forms of near-surface wind belts, such as the trade winds, and upper-level jet streams. These patterns are caused by the temperature difference between the polar and equatorial regions.

As the Earth warms, the polar regions are heating up more than twice as fast as the equator. This can shift weather patterns, leading to extreme events in unexpected places. Anyone who has experienced a “polar vortex event” knows how it feels when the jet stream dips southward, bringing frigid Arctic air and winter storms, despite the generally warmer winters.

In sum, a warmer world is a more violent world, with the additional heat fueling increasingly more extreme weather events.

This article, originally published Dec. 19, 2023, was updated Jan. 9, 2024, with NOAA’s disasters list.

About the Author:

Shuang-Ye Wu, Professor of Geology and Environmental Geosciences, University of Dayton

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By D. Brian Blank, Mississippi State University and Brandy Hadley, Appalachian State University 

With economic forecasters rewriting their 2024 outlooks following recent moves from the Federal Reserve, The Conversation turned to two financial economists to share their thoughts on the upcoming year.

D. Brian Blank and Brandy Hadley are professors who study finance, firm financial decisions and the economy. They explain what they’re watching in 2024.

1. At this time last year, many experts saw a downturn on the horizon. Will that long-predicted recession finally come to pass in 2024?

The good news is, probably not.

The U.S. economy is not in a recession and will likely continue growing. Over the past year, gross domestic product has outpaced expectations, inflation is trending downward and employment remains robust. Real wages have increased, as has consumer spending. Additionally, housing demand is strong and financial markets are at all-time highs. While no one should argue that there will never be another recession, 2024 seems to be an unlikely time for one – unless there’s some unexpected spark like, for example, a new global pandemic.

To be fair, optimism leads to risk-taking, which can always contribute to the next downturn. And the U.S. economy faces plenty of challenges, including already elevated debt costs, a possible government shutdown, rising consumer debt and continued distress in commercial real estate, which could result in rolling industry downturns. Other headwinds include the national debt, other nations’ weaker economies and ongoing global conflict and trade tensions.

While 2023 has seemed to many people like a “soft landing” – that elusive achievement in which policymakers reduce inflation without sparking a downturn – prior recessions have followed periods where people thought they had been avoided. That may be why bankers, finance leaders and economists are still noting the risks of interest rates remaining high.

Still, the fundamentals are strong and may be on the rise, if you believe chief financial officers. Plus, despite dysfunction in Washington, recent laws and policies like the CHIPS and Science Act, the bipartisan infrastructure deal, the AI Bill of Rights and the Executive Order on Safe, Secure, and Trustworthy Use of Artificial Intelligence could further boost economic growth by stimulating job creation and enhancing competitiveness. Notably, public and private manufacturing and industrial investment are at unprecedented levels, and technology is quickly advancing, further contributing to the positive economic outlook, not to mention strong consumer balance sheets.

2. Then what about a ‘vibecession’? Are we in one now, and why does it matter for 2024?

When you look at the economic pessimism revealed in polls and on social media, a fascinating paradox emerges – despite the collective bad vibes, the majority of Americans say their personal economic situations are basically fine.

The writer Kyla Scanlon has called this state of affairs a “vibecession”: While the economy continues to grow, the vibes are just off. The fact that consumer spending continues to see sustained growth, despite the gloomy economic outlook, underscores a curious split between sentiment and economic activity.

3. What if individual income and spending keep rising? Wouldn’t that be enough to end the vibecession?

In short: Not necessarily.

While inflation has been high over the past couple of years – reaching a peak of 9.1% in June 2022 before falling to 3.1% recently – most Americans have not seen their income rise as fast as inflation since 2021. As a result, many are frustrated that they can’t afford what they could in 2020. Is reminiscing like prior generations about how Coca-Cola used to cost a nickel killing the vibes? If inflation rises faster than wages in 2024, the vibes may suffer.

What’s more, other positive economic developments have seemed to barely affect the vibes. Just about everyone who wants a job has one, which is a crucial factor in maintaining consumer confidence and spending habits.

To be sure, gas prices also play an outsized role in shaping sentiment, and as they unexpectedly fell in December, sentiment improved. This highlights the impact of energy costs on the public’s mood and suggests that fluctuations in gas prices can quickly influence overall economic sentiment.

However, we suspect that consumers will keep doing what they’re doing – spending money and feeling bad about the economy – until some shock forces them out of it. This weird contradiction between perceived gloom and personal financial well-being highlights the complex interplay of psychological factors and material realities that shapes the overall economic narrative.

4. Could the vibecession become a self-fulfilling prophecy?

Consumers say they feel bad, but they’re continuing to spend more than expected, which has been the case for more than a year now. These facts seem at odds with each other, and some experts worry the pessimism itself could hurt the economy. This is because people spend less when they’re concerned about the future.

However, this has been the case for months – so it’s unclear why it should change now.

While understanding that consumer sentiment is complex, we think it makes more sense to focus on what people do, not what they say. And people are behaving in a way that’s consistent with a strong economy due to rising real income, not to mention a robust labor market.

And overall, if you tell people for the better part of two years that a recession is imminent, you shouldn’t be shocked that they’re gloomy. If the consensus is wrong, it should surprise no one when sentiment diverges from economic data – especially with politicians blaming each other for a weaker economy.

5. What else are you watching for in 2024?

Coming off the December Federal Reserve meeting, many forecasters have rewritten their 2024 outlooks with the expectation that the Fed will lower rates more than they anticipated before Chair Jerome Powell gave an optimistic press conference. Though many expected Powell to minimize discussions about lowering rates, meeting responses were strong, deeming inflation defeated and consensus expectations forecasting a benchmark federal funds rate below 4% by year end to relax financial conditions.

While investors appear to have overreacted – again – additional slowing in inflation and economic growth is likely as the economy continues to normalize post-pandemic. The most likely outcome for 2024 is that the Federal Open Market Committee lowers rates following more downward revisions to inflation data beginning as early as March until rates end the year just below the Fed’s 4.5% federal funds rate projection. However, the Fed isn’t waiting for inflation to reach its 2% target before lowering rates, which means that rapidly falling inflation could make more rate cuts possible.

Economic growth is likely to remain strong in 2024, and inflation will likely slow, albeit at a more muted rate. And with mortgage rates falling below 7% now, housing starts and mortgage originations are rising. Now, housing affordability may improve in the coming year, albeit from the worst level in decades.

While 2024 is likely to involve debates in other areas, hopefully fewer of these economic conversations will happen in 2024 than in 2023. And if we are lucky, markets will rise at least as quickly, though we should remember that almost everyone was wrong last year – and if there’s one prediction we can make with confidence, it’s that at least some of today’s forecasts will look pretty silly in retrospect.

About the Authors:

D. Brian Blank, Associate Professor of Finance, Mississippi State University and Brandy Hadley, Associate Professor of Finance and the David A. Thompson Distinguished Scholar of Applied Investments, Appalachian State University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By ForexTime 

Article by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

By Gokcay Balci, University of Bradford 

Attacks on international cargo ships in the Red Sea from Houthi-controlled Yemen have seen several cargo vessels hit by missiles and drones in recent days.

In response, global shipping companies and cargo owners – including some of the world’s largest container lines such as Maersk, as well as energy giant BP – have diverted ships from the Red Sea. So far, more than 40 container ships have been diverted, with many rerouted to less direct channels than the Suez Canal – an artificial waterway in Egypt that connects the Mediterranean Sea to the Red Sea.

Opened in 1869, the Suez Canal is one of the busiest canals in the world, carrying around 12% of global trade. In 2022, 23,583 ships used this route. Any disruptions can have severe knock-on effects as these ships deliver goods from one country to another. Ultimately, this can even feed into the prices you pay for certain goods, as well as the time it takes to get things delivered from overseas.

Remember when the container vessel Ever Given got stuck in the Suez Canal for six days in 2021? It affected the shipping lane for weeks, playing havoc with global supply chains and disrupting global trade flow to the tune of billions. Previously, when the Suez Canal closed between 1967 and 1975 due to the six-day war between Israel and a group of Arab states, global trade was also negatively affected. Ships had to sale around South Africa’s Cape of Good Hope instead – a much longer route.

While there is also a Northern Sea route that ships can take, it is not navigable in winter season and not yet commercially viable for many shipping companies. And so, the Suez Canal is the shortest and most suitable sea route between Asia and Europe.

Longer journeys will impact global supply chains

The sailing time between eastern Asia and western Europe can increase by about 25-35% when ships use the Cape route. For instance, a vessel travelling at 13.8 knots per hour (the current average speed of global container ships) between Shanghai, China and the Port of Felixstowe in the UK will see its sailing time increase from an average of 31 days to 41 days when sailing around the Cape.

It’s even worse for exporters shipping goods from say Italy to Dubai – the Cape route could take them 160% more time than the Suez route (12 days versus 32 days). These sailing times could be more for container vessels as they stop at other ports along their routes.

When it comes to comparing costs for the two routes though, the figures are not straight forward. Vessels passing through Suez Canal need to pay a toll. This can be as much as US$700,000 (£550,000) for a vessel carrying 20,000 containers (a typical large container vessel commonly used for east to west trades). But the Cape route could still cost 10% more, even with the canal transit fee, according to research published in 2022. The exact cost difference also depends on current fuel prices, as well as size and the type of vessel.

But it will be the reduced shipping capacity due to longer transit times, not the increased operating costs of shipowners, that will really weigh on global supply chains. This is because freight rates (the price companies pay to transport goods) depend on supply and demand.

It was a supply and demand imbalance that caused shipping costs to skyrocket during the COVID pandemic. Shipping supply was reduced because of disruptions, but demand increased because people were spending more on goods than services during lockdown. This time, the magnitude of freight rate increases is unlikely to be as large because there is no indication of a surge in demand for shipping services.

How shipping disruption affects you

If you live in the UK and have ordered new sofa from a manufacturer in China, you could expect a delay of at least ten days. The prices of certain products could also rise if freight levels increase significantly. An International Monetary Fund forecast shows a doubling of shipping costs could increase consumer price inflation by 0.7% percent.

However, sea freight activity generally has a marginal impact on most consumer prices – it only makes up 0.35% of prices for some types of clothing, for example. On the other hand, oil prices could spike if more energy companies follow BP and stop using Suez Canal, especially if this disruption persists over time. The price of Brent Crude – a global benchmark for oil – has already risen from US$73 on December 12 to about US$78 on December 18 2023.

Although you might not have to pay more for the products you buy, there is another cost of this situation, for people and the planet: increased carbon emissions. More than 3,000 extra nautical miles will be taken by vessels using Cape route, which could generate around 30-35% more carbon emissions than if these ships were sailing the Suez route. The shipping industry already creates 3% of global emissions.

Shipowners will be forced to keep diverting ships from the Red Sea if attacks on vessels continue. Of course, it remains to be seen when and how this problem will be solved. Until it is, uncertainty and change could continue to affect your pocket – and the planet.

About the Author:

Gokcay Balci, Assistant Professor in Logistics and Supply Chain, University of Bradford

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By ForexTime 

• SPX500_m pushing higher today to kick off “Santa Rally” period
• “Santa Rally” period typically refers to last trading week of December and first 2 trading days of new year
• S&P 500 has climbed in 4 out of the past 5 “Santa Rally” periods
• US stocks soared this year due to AI-mania and hopes for Fed rate cuts in 2024
• SPX500_m should have enough reasons to reach new record high next year

The SPX500_m is edging higher on this first trading day after Christmas.

NOTE: The SPX500_m tracks the underlying S&P 500 index, which is the benchmark used to measure the overall performance of US stock markets.

Gains today (Tuesday, December 26th) and in the days ahead, would prove true the seasonal occurrence of a “Santa Rally”.

What is a “Santa Rally”?

The classic Santa Rally sees US stock markets rising around Christmastime, and going into the new year.

According to research going back to 1950, this “Santa Rally” period specifically refers to the last week of December and the first two trading days of the new year.

This year-end period has produced a positive return for the S&P 500 nearly 79% of the time.

Furthermore, December has historically been a favourable month for US stocks.

According to Dow Jones, the S&P 500 has ended higher in December more often than any other month.

No other similar duration of trading sessions is more likely to be higher.

The statistics also indicate that this seven-day span has averaged a 1.3% gain which is the third-best seven-day run of the year.

Still, market commentators tend to use the ‘Santa Rally’ term quite broadly to refer to either the entire month of December or a relatively longer time period.

After all, the SPX500_m has been soaring since early November, and really for much of this year (more on that in a bit).

“Santa Rally” happened in 4 out of the past five year-end seasons

Hence, if we take further liberties with the supposed timeframe, extending it from the first post-Christmas trading day until the first weekend of the new year, here’s how the S&P 500 has fared during this festive period:

• 2022 – 2023 = +1.3%
• 2021 – 2022 = -1%
• 2020 – 2021 = +3.3%
• 2019 – 2020 = +1.4%
• 2018 – 2019 = +4.8%

Of course in some years, stock markets have performed poorly, as was the case at the tail-end of 2021 as stocks continued to struggle with the prospects of incoming Fed rate hikes.

So, seasonality and calendar theories are not a guaranteed way to make profits as it is tough to predict what will impact markets in any given year.

5 potential causes for a “Santa Rally”

There are numerous reasons why the last few days of December and the first couple in the new year are good ones for stock markets.

1. The January effect is often cited as institutional investors ready themselves ahead of and into the new year, to set up positions for the coming weeks and months.
2. We also see a rebalancing of portfolios by major institutions for tax-loss selling in December to close out losses, followed by repurchasing in January.
3. Certainly, the holiday period is a time of lower volumes when liquidity is thin. This can make it easier for bullish investors to move markets during the season of goodwill.
4. Increased holiday shopping and optimism over the Christmas season may also include investing holiday bonuses.
5. The impact may simply be a self-fulfilling one as investors know about the trend for a Santa rally so will buy stocks accordingly, leading to further gains.

Santa Rally would cap off a “magnificent” year for US stocks

Of course, 2023 has seen the “Magnificent Seven” take all the plaudits as they have propelled the major indices to (near)record highs.

Here’s a recap of the year so far for these 7 Big Tech stocks:

• Apple and Nvidia secured new all-time peaks this calendar year.
• Tesla and Meta more than doubled (climbed over 100% each) over the course of 2023.
• Amazon, Alphabet (Google’s parent company), and Microsoft have each recorded year-to-date gains of 82.6%, 60.8%, and 56.2% respectively.

All that far surpasses the S&P 500’s year-to-date ascent of 23.8%.

That said, encouragingly the market breadth has broadened in recent months.

In general, the greater the number of stocks that are helping push the overall market higher, the more support the market has.

2023 Recap: What drove US stocks higher this year?

Simply put, US stocks have climbed higher this year due to the AI-mania as well as hopes for Fed rate cuts in 2024.

This once again shows that markets are forward-looking in nature: today’s prices reflects tomorrow’s expectations.

For the first half of the year, much of the gains for US stocks had been due to the optimism surrounding artificial intelligence (AI).

Hence, the stunning double- and triple-digit returns seen for the “Magnificent 7” (Apple, Microsoft, Amazon, Nvidia, Alphabet, Tesla, and Meta).

Then, US stocks pulled back between August through October, as doubts started to creep in about whether the AI-mania had gone too far.

Also, this Aug-Oct period was when markets heeded the Federal Reserve’s (Fed) messaging that interest rates could stay higher for longer as US inflation appeared stubbornly elevated.

However, after the Fed’s final two policy meetings of 2023 (early-November and mid-December), markets ramped up hopes that US interest rates will move lower in the new year.

Such hopes were solidified when FOMC members (Fed officials who vote on interest rates) themselves projected 75-basis points in rate cuts for 2024.

NOTE: US stocks, especially growth/tech stocks, tend to rejoice at the prospects of US interest rates moving lower.
This is because lower interest rates make it cheaper for such companies to borrow money and expand their respective businesses.

Can the SPX500_m keep climbing next year?

US stock markets are expected to enjoy another year of gains ahead, based on 2 key reasons:

1) The aforementioned Fed rate cuts

2) US Presidential Elections seasonality

Since 1980, the S&P 500 has posted an annual gain in every single year featuring a US Presidential Election, except during the 2000 dot com bubble and the 2008 Global Financial Crisis.

The two factors listed above have even prompted Wall Street to forecast a further 7.6% in gains for the S&P 500 over the next 12 months.

If those forecasts prove true, by this time next year …

We could see the S&P 500 index above the 5,100 mark for the first time in its history!

As things stand, the SPX500_m’s highest-ever intraday price now stands at 4820.0, posted on January 4th, 2022.

That said, barring a “black swan” event that blindsides investors and traders in the coming year …

The SPX500_m should have enough reasons to set a new record high in 2024!

Article by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com