Predicting Market Trends for 2024: Insights from December 2023 Activity

Post date: 2024-01-02 17:51:28 GMT

Analyzing Institutional Investors, High-Frequency Traders, and Retail Investors' Preferences for the New Year

Many market trends for the new year are set in December. It is in December that most institutions rebalance their portfolios setting the course for the upcoming first quarter or the full year ahead. As a result, observing December activity is always interesting and highly predictive of what’s to come. AbleMarkets market flow indices capture institutional, HFT and retail activity and can be a crystal ball of market agents’ beliefs and upcoming future developments.

So, what trends for 2024 can we glean from December 2023?

According to AbleMarkets analysis, Institutional investors were seen to be agnostic to the market risk of the company, buying into pro-cyclical and counter-cyclical stocks alike. However, institutions did show specific preferences: 1) smaller stocks, and 2) stocks with higher volatility. Institutions were seen disposing of large-cap stocks in favor of small cap. The preference for higher-volatility securities may represent option-backed strategies institutions are taking to enter into leveraged long positions for 2024.

Small-cap stocks are often seen as making the biggest gains in the upswing economy. The long-volatility plays indicate institutional belief in economic strength and resilience of the U.S. markets.

High-Frequency Traders (HFTs) also went for higher volatility stocks, which is traditionally the case: in order to realize significant short-term gains, many HFT strategies need significant and frequent up and down price movements (i.e., volatility). Uncharacteristically, the HFTs also focussed on smaller stocks, potentially following institutional demand and trading activity.

Who took the opposing sides to the institutional and HFT trades? Retail investors were identified as those focussing on larger and less volatile stocks.

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