Money-supply growth and a wave of rate cuts outside the U.S. are propelling stocks, says this fund manager

Fund manager Daniel Lacalle attributes current stock market strength to global central bank rate cuts and robust money supply growth, anticipating the Federal Reserve will soon join this trend. He posits that a Fed rate-cutting cycle would significantly reduce dollar hedging costs, thereby attracting international investors to U.S. Treasuries and contributing to dollar stability. Lacalle also offers a contrarian view, suggesting OPEC+ is content with lower oil prices to maintain market share, and remains bullish on gold, anticipating continued central bank diversification purchases despite his expectation of dollar stability.

Analysis

According to fund manager Daniel Lacalle, global equity markets, exemplified by the S&P 500's 8% year-to-date gain, are being fueled by aggressive monetary easing. This includes rate cuts by twenty central banks and a 12% annual growth in the money supply, with expectations that the Federal Reserve will soon follow suit. Lacalle presents a nuanced view on the U.S. dollar, arguing against a significant decline. He posits that Fed rate cuts will lower dollar hedging costs, thereby increasing the attractiveness of U.S. Treasurys for international investors and supporting the dollar index within a 98-100 range. This perspective is reinforced by his unconventional assessment of U.S. trade policy as a "very successful" negotiation that has reduced uncertainty. Furthermore, he offers contrarian insights on commodities, suggesting OPEC+ is content with lower oil prices to secure long-term market share against renewables, and remains bullish on gold due to sustained central bank diversification buying, a factor he sees as independent of the dollar's trajectory.

Key Decisions for Investors

• Investors should monitor global central bank actions and money supply figures as primary drivers for equity market performance, as continued easing is presented as the key catalyst.
• Consider positions that benefit from a stable or strengthening U.S. dollar, even in a Fed rate-cutting environment, due to the described dynamic of lower hedging costs attracting foreign capital to U.S. Treasurys.
• Re-evaluate the traditional inverse correlation between gold and the dollar, as persistent central bank demand may provide a separate and durable tailwind for gold prices.
• Factor in the possibility that OPEC+ may act to stabilize oil prices and prevent significant spikes, potentially limiting upside volatility from geopolitical events.