Things are going very much according to plan for investors as November has been a terrific month for stocks. This is quickly making the earlier correction fade in the rear view mirror.
What is driving stocks higher?
Is there anything to worry about going forward?
All that and more will be the focus of today’s Reitmeister Total Return commentary.
Market Commentary
Let’s tackle those topics noted above in the intro:
What is Driving Stocks Higher?
First remember that a surge in bond rates up to 5% for the 10 year Treasury was the main factor behind the previous correction. It is that advance stopping in its tracks and reverting that was the catalyst for stocks to rebound.
The retreat in the 10 year Treasury to 4.3% is a big part of the equation. Gladly around the globe we saw other key bond rates in Europe and Japan pull back from recent spikes.
The main reason for this is that the battle over high inflation seems to have been won without Central Banks creating a recession. Now investors are looking ahead to 2024 when the Fed, and their international counterparts, start lowering rates. This should spark more economic growth and with that higher equity prices.
Is There Anything to Worry About Going Forward?
Yes.
It is always risky to assume that the Fed can be this aggressive with their rate hike regime without sparking a recession. That’s because 12 of the last 15 rate hiking periods did end in a recession. Gladly the odds of a soft landing for the economy looks like the best bet.
Unfortunately, there are 6-12 months of lagged effects on Fed policies that could still jump up and bite the economy in 2024 even as they start ponder lowering rates. Thus, we all need to stand watch that no recession is in the offing. That would obviously lead to stock downside (and perhaps return of a bear market).
I see the odds on this as being fairly low. Like only 15-20%. Yet given that I do have an economics background I have to admit it’s a soft science and recessions have a way of coming out of nowhere surprising economists and investors alike.
Currently I would not worry about a recession. I would just keep close watch on the economic indicators to make sure there is not one forming.
Our best friend for that is the GDPNow model from the Atlanta Fed that has done a great job estimating the quarterly readings for GDP. Right now…
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