November 6, 2023
Good morning,
That was quite a rally last week in stocks and bonds (but not commodities). The S&P 500 Index (SPX) jumped +5.85% and was the weakest major U.S. index on the week. International indexes were not able to keep pace with the SPX, however. There were several reasons for the strong move, and it’s impossible to attribute the role of one factor over another. Two factors were sentiment and seasonality. The market was very oversold, and everyone was aware of the tendency of the equity market to rally into year-end. In addition, bond market bulls seemed to get what they needed from Chair Powell’s words on Wednesday, even though he said the same thing he’s been saying for 6 months, and they launched a major rally in the bond market (prices higher / yields lower), placing their stake in the ground for the end of this Fed’s tightening cycle.
Over the weekend, there seemed to be a lot of one-year forecasting based on last week’s market action. That strikes me as silly and overly dependent on recency bias. It may be more reasonable to suggest that last week’s powerful snap-back rally, following three straight months of decline, will permit stocks to continue to rally into year-end.
Let’s enjoy the rally, allow it to reveal its likely durability, and see some economic data to learn if inflation does rise into Q4, as so many economists/strategists have warned. If so, it will be a good indication that markets have once again, incorrectly jumped ahead of the Fed.
Be well,
Mike
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