New York - January 8, 2024 ~ We are forecasting that 2024 will be "The Year of Global Rate Cuts" as foreign central banks are forced to cut rates in the face of weakening growth and/or recession. Real-time data verifies that the Euro Zone is in a recession with the Euro Zone GDP now indicating a .8% decline in GDP for the 4th quarter of 2023, led by the decline in the German economy which has declined by .8% over the last year. Recent data continues to worsen in Germany with industrial production coming in at negative .7% for November and down 4.8% year-over-year and retail sales coming in at negative 2.5% for November and down 2% year-over-year. We forecast that these global rate cuts will cause the US 10-year to drop into the 3.0-3.5% area.
Preferred stocks are trading at a large discount to par value at -14.6% vs. an average discount of only .5%. Preferred stocks are supported by the fact that almost all of the $25 par listed preferred securities are issued by larger capitalization public companies that are committed to maintaining strong credit metrics. This commitment is evidenced by the low 30-year default rate of .3% per year vs. over 3% for high-yield bonds and .1% for investment-grade bonds*. We believe that the strong fundamentals of preferred stock issuers combined with declining long-term interest rates, are likely to result in preferred stocks returning to only a modest discount to par as they have in the past.
*30-year default rates from 1990 to 2019 are sourced from Moody’s Investor Services.