Investors should focus less on rates and more on money flows

MARKETS this year have followed the same law that held during much of 2023: whatever the news, equities and credit always rally. But there are growing reasons to doubt whether the pattern will hold. 

The problem is not with the economy. Recession fears are all but forgotten. Lower inflation means real wages are growing again. Corporate profits are strong, with little sign of pressure on record margins. Despite 20-year highs in interest rates, unemployment has ticked up only slightly from record lows.

Credit concerns linger, but even the prospect of losses on some tranches of commercial property debt previously rated AAA shows little sign of proving systemic. Besides, were the outlook to deteriorate, central banks would simply move to additional rate easing.