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March 2024 Market & Economic Outlook and Commentary

March 2024 Market & Economic Outlook and Commentary

InfraCap Management, New York ~ The team at Infrastructure Capital Advisors has completed our new report providing key insights on current market conditions and economic outlook for this month and the coming months. See this month's full report below but be sure to JOIN our Monthly Market & Economic Outlook Webinar scheduled for Wednesday, March 13th at 1:30 pm ET where Jay Hatfield, CEO/CIO and portfolio manager will provide even more recent updates and insights to this report and the changing market and economy. Not registered for the webinar already? Click here to register. Also, by registering, we will send you a webinar playback video link if you are unable to join live.

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Monthly Bond Market Outlook and Commentary

Stock Market Outlook:

Raising price target on S&P 500 Index to $5,750 from $5,500 based on AI boom and increased conviction of summer rate cuts

  1. For example, NVDA’s earnings report validated that the AI boom is sustainable and we have raised our price target to $1,000 based on 40x our 2024 (1/25 YE) estimate of $25/share

    1. During technology booms, it is optimal for companies with promising technology to become overvalued to attract capital and reduce the time to market.

    2. The AI boom has recently been validated by non-tech CEOs, such as Jamie Dimon of JP Morgan, who indicated widespread adoption of AI throughout the bank.

  2. Many forecasters are too bearish about the consensus implied earnings growth rate of 10% as they fail to recognize that all aggregate earnings growth comes from the reinvestment of retained earnings and depreciation and is not driven by margin expansion or dependent on high GDP growth.  The normal S&P earnings growth rate is over 10% as 70% of earnings are retained and reinvested at approximately at 15% after-tax rate.

    1. Corporate savings represents almost 75% of gross domestic savings in the US.

    2. Raising corporate taxes is a disaster for the economy and the stock market with an increase in the rate to 30% likely to cause a drop in stock price levels of 25%.  The drop would be due to lower corporate earnings, but also a decline in the earnings multiple due to lower growth prospects.  Economic growth would drop as corporate investment is the primary driver of economic growth.

    3. Since 1980, the average worldwide corporate tax rate declined from 40.2% to 23.2%.  An increase in the rate would make the US uncompetitive and cause a loss of jobs and tax revenue as global corporations move operations overseas.



Monthly Economic Outlook Commentary

Bond Market Outlook:

We project that 2024 will be the Year of Global Rate Cuts.  The futures market in all major economies imply an unprecedented number and magnitude of rate cuts.  The global rate cuts are likely to drive the 10-year Treasury rate into the 3-3.5% range.

  1. ECB implied rate cuts are currently 5 (120BP)  

  2. Every OECD country except Japan is projected to cut rates with an average cut of over 1%.

  3. The Fed is likely to be slower to cut than most central banks as the US economy is stronger than most and the Fed still believes in the Urban Myth that 70s inflation was caused by starts and stops in monetary tightening while ignoring the 1200% rise in energy prices as the key culprit.

  4. Smaller central banks such as Hungary and Chile are already cutting rates


Monthly Stock Market Outlook Commentary

Fed and ECB Outlook:

A. We have increasing conviction on summer rate cuts with the ECB likely to cut in June and the Fed in June or late July.

  1. Last week’s employment report put a June Fed rate cut back on the table with January’s number revised down by over 100,000 jobs, wage growth moderating to .1%, and the unemployment rate rising to 3.9%.  

  2. US inflation is contained but is mismeasured by the archaic shelter component of CPI/PCE.  Goolsbee recently acknowledged the flaws in that measure.  The recent uptick in PCE Core was also driven by a ludicrous 60% annualized increase in asset management inflation driven by an increase in stock prices/AUM.

  3. The ECB economy continues to be stalled with certain countries such as Germany in recession and recent manufacturing PMIs at 46.5 indicating a contraction.

  4. We forecast that Euro Zone inflation will be approaching the ECB’s 2% target by May and that US Core PCE will decline to 2.5% by the end of June.  

    1. These declines should set the stage for summer rate cuts with the ECB acting first due to weak economic growth.

  5. The CPI release was distorted by shelter and financial services.

    1. Almost all of the hot core print was due to an increase in shelter from .4% last month to .6%. In addition, financial services increased by 2.5%, which is based on the market price of equities, causing core CPI to rise by .05%.  Shelter expense is distorted by the archaic BLS estimation method which is purposely delayed by 6 months and uses lease renewals which are delayed. 

    2. Actual rents are down 1% vs. the up 6% Y/Y increase reflected in the CPI.  In addition, the entire increase in financial services inflation is caused by increases in market prices whereas real financial services inflation is approximately zero.

B.      We project that there will be a $2 Trillion Injection of Liquidity into the Global Money Supply during 2024:

  1. Most investors do not appreciate that central banks cannot mandate rate cuts and must inject liquidity into the banking system, which normally causes powerful rallies in both stocks and bonds.

  2. In 2020 and 2021 over $8 trillion of liquidity was injected into the global monetary system resulting in a powerful stock and bond rally of 120% off the lows culminating in a crypto, meme stock, and SPAC bubble.  During 2022, there was a $1.4 trillion reduction in the global monetary base which caused a 25% decline in the S&P.

  3. The 2024 injection is likely to drive the S&P 500 well above our target of 5,500, representing at least a 15% rally and driving the 10-year bond yield into the 3-3.5% range.

    1. Because most investors do not appreciate the impact of these liquidity injections, most strategists are way too conservative with regard to their 2024 targets as most are in the range of 5,000 where we are currently trading.

C.      The US Economy Will Continue to Be Resilient in 2024:

  1. 11 out of the last 12 recessions were precipitated by a collapse in the housing sector.  We have been forecasting for the last two years that the US economy would not go into a recession due to the shortage of housing in the US.  We are projecting solid growth in GDP of 2% in 2024 with some headwinds from tight Fed policy causing the economy to grow below the trend growth rate of 3%.


Monthly Bond Market Outlook and Commentary

Commodity Outlook:

A.     Recent Oil Price Weakness Driven By Warm Winter:

  1. We maintain our $75-95 range estimate for oil in 2024 as continued production constraint from OPEC+ and steady demand growth support the price.

  2. Middle east war providing only modest support to the oil market.

  3. We attribute the recent weakness to seasonal/weather factors partially offset by uncertainty created by Houthis attack on Red Sea shipping lanes.

  4. December of 2023 was the warmest in 150 years.


B.      China’s Economy is Way More Resilient Than Perceived which Benefits Commodities:

  1. China is the only major global economy that is loosening monetary policy.  China increased its monetary base over $140 billion in September representing a 2.9% increase vs. a $300 billion drop in the Global Monetary Base.

    1. China is projected to grow by 5% this year.

    2. China saves 45% of GDP vs. less than 20% in the US, which results in much higher long-term growth as the critical driver of economic growth is savings and investment.

    3. The property crisis is a concern, but the central government is likely to intervene if it starts to generate contagion.

    4. The China recovery story is bullish for global commodities and growth.

C.      The utopian vision of an all-electric economy has now completely imploded as average consumers have limited interest in all electric autos, and renewables development falters due to nimby opposition to offshore wind and massive cost over runs.  Europe’s failed energy transition is likely to exacerbate a recession and lead to regime change in many countries.

  • The failed attempt to push an all-electric vision has hurt the environment as there was less focus on hybrid electric cars and using natural gas to supplant coal.



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