For most of 2023, investors were concerned about inflation and interest rate issues. However, now they are rushing to purchase everything from stocks, bonds, cryptocurrencies, and even gold.
At the same time, the simultaneous surge of various assets has sparked a debate, namely; Quota; The rise of all assets; Quota; Does it signify the arrival of a prolonged bull market in the US stock market, or is it just a brief "sugar coated bullet" at the end of the Federal Reserve's tightening cycle.
At the beginning of this year, benchmark interest rates continued to rise, and Wall Street was prepared for an economic recession. The major stock indexes of the US stock market; Quota; Seven giants; Quota; Driven by the rebound, most other sectors are sluggish.
Now, with the sharp decline in US Treasury yields, investors feel that the Fed's interest rate hike is coming to an end. As a result, the decline in US Treasury yields has triggered a widespread rebound: some of the most sluggish industries in the market, including real estate stocks and regional banks, are leading the way.
Jason Draho, Head of Asset Allocation for the Americas at UBS Global Wealth Management, said:; Quota; The economy is slowing down, but not collapsing, all of which means that concerns about the Federal Reserve raising interest rates no longer exist& Amp; Quota;
The S&P 500 index has risen 12% from its low point on October 27th, reaching its highest level in 2023, and the increase so far this year has expanded to 20%. In the bond market, as prices rise, the benchmark 10-year US Treasury yield has now dropped to 4.2%. According to data from UBS Group, the return on US government bonds in November was 3.44%, marking the third best monthly performance since 1989.
In addition, gold futures prices reached a historic high in December, indicating that investors are increasingly confident that interest rates have reached their peak, and an increase in interest rates typically reduces the attractiveness of gold.
This week, we will help investors assess the next steps in the economy and market. The consumer price index for November will be released on Tuesday, and the next policy meeting of the Federal Reserve will end on Wednesday.
The skepticism of individual investors has subsided. The weekly survey released by the American Association of Individual Investors last Thursday showed that nearly half of the participants said they expected the market to rise in the next six months, far above the historical average of the survey. In early November, only 24% of respondents were bullish and half were bearish.
Jason Draho, economist and portfolio strategist at New York Life Investment Company, believes:; Quota; This rebound may continue until 2024. What I'm worried about is that this kind of Federal Reserve's loose rebound is very typical in the later stages of the economic cycle& Amp; Quota;
Behind the rebound is people's belief that the Federal Reserve can achieve; Quota; Soft landing; Quota; The increasing confidence of the central bank means that it can curb inflation without causing a significant economic slowdown. The consumer price index in October increased by 3.2% year-on-year, lower than market expectations.
According to the Federal Reserve observation tool of the Chicago Mercantile Exchange, the market expects a 98% chance that the Federal Reserve will maintain interest rates unchanged at this week's meeting. They believe that the likelihood of a rate cut by the Federal Reserve in January next year is 4%, and the likelihood of a rate cut in March is 46%. It is expected that by the end of next year, interest rates will be one full percentage point lower than the current level.
Skeptical investors and strategists do not believe that the Federal Reserve will immediately reverse course. They pointed out that people are concerned that inflation may rise again, or that a long-standing economic recession may eventually emerge.
"I don't think there will be any reports in the near future that will truly change the Federal Reserve's monetary policy stance," said Alex McGrath, Chief Investment Officer of Northern Private Wealth. He said that the main supporting factor behind the recent rise in the stock and bond markets is the expectation of the Federal Reserve cutting interest rates next year.
Mike Sanders, head of fixed income at Madison Investments, also maintains a similar cautious attitude. He said, "I think the market's idea of a rate cut in March next year is a bit too radical." Sanders said that the Federal Reserve is more likely to start cutting rates in the second half of next year.
Moreover, compared to history, stocks are still quite expensive. According to FactSet data, the P/E ratio of the S&P 500 index over the past 12 months has been around 22 times, slightly higher than the 10-year average.