(WCTW) A Seismic Market Shift Is Underway
China's stimulus will bring back value, cyclical, and inflation.
China's incoming fiscal and monetary policy change is going to shake the global markets. Market price action to start 2025 is already evident of that despite what feels like a brutal market for value, cyclical, and energy investors. But what's unfolding under the hood is precisely what you want to see concerning the seismic shift that we see underway.
On Dec 9, 2024, we published a WCTW report titled "Moderately Loose? No, I'm Not Talking About The Oil Market. Buckle Up, It's About To Get Real." In it, we wrote:
What does this mean in terms of investing?
Value, cyclical, and inflation are back.
This is it. This is like the Pfizer vaccine moment back in 2020. The China rhetoric has changed. It's not your complacent China anymore. The fact that this announcement came well in advance of what I expected tells me that these guys are watching the data closely. This is a bit like OPEC+ acting well in advance of any storage builds after the 2020 debacle. China is doing something similar. And for Xi to announce that he wants to see confidence return is the signal shift we needed.
Looking at the YTD performance, you can clearly see how the announcements from China have materially shifted the way investors are perceiving the world. Couple that with the increasing policy instability in the US, and investors are voting with their money by allocating into other areas of the market.
The energy sector, which has been hated for the last 3-years, is finally gaining some traction again. The energy sector is the best performing sector in the US and it's gain of 9.53% is materially better than the -1.93% from S&P 500. Remember that at the end of 2024, every strategist was calling for the bull market in the US to continue.
The consensus nails it on the head again.