Actionable market insights delivered weekly
Inflation Trending Lower… But More to Do
Today we received CPI for October. It was slightly softer than expected and continues to (slowly) trend lower. That’s good news. However, stocks jumped on the data and feel its enough for the Fed to end further hikes. What’s more – the market is now pricing in rate cuts as early as March. That feels like a dangerous (aggressive) assumption… I think there’s a lot more work to do. Remember – getting inflation down from 4% to 2% is where the hard work begins. Wage growth for example remains at 4.2% YoY.
Fed Warns, Stocks Shrug
“We still have a long way to go” – that was the not-so subtle warning from Jay Powell this week. After what many felt was a slightly less hawkish Fed Chair last week – sparking an equity rally – Powell attempted to adjust his tone at an IMF event. Was he successful? That’s hard to say – as equities seemed to shrug off any warning from the Fed – surging ahead to be up 15% year-to-date. Here’s my question: are investors being too sanguine about what’s still unknown?
Are Bond Yields and Oil Cracking?
Today was an important day in the bond market. The US Treasury auctioned $40B of 10-Year notes. Coming into the auction – I was worried there would not be a decent bid. For example, if we faced further buyer’s strike – these yields were likely to resume their path higher. However, we saw the opposite. The 10-year yield drifted lower. So what does this tell us about future economic growth? Are investors worried? In addition, the price of WTI Crude is also sharply lower… back below US$80/bbl on concerns of weakening demand. Are equities slow to connect the dots – as they are headed in the opposite direction.
For Now, A Slowing Economy is Good News
A weaker than expected October payrolls print sent stocks flying and bond yields sharply lower. The S&P 500 finished at 4358 – a whopping 5.9% for the week. It was the market’s best week for the year. Renewed bullish enthusiasm was mostly due to investors betting the Fed is done. And that makes sense. For example, if employment, growth and inflation continue to soften – there’s every possibility the Fed has hit its terminal rate. However there is a caveat. Not only will the Fed need softer economic data – they are hoping the bond market continues to keep financial conditions tight (i.e. bond yields stay high)