Jerome Powell and his merry band of accomplices move markets whenever they speak. Stocks are up and bond yields are down whenever they signal that the most powerful central bank in the world will not raise interest rates and may even lower them. The market is down and yields up on any hints that the Federal Reserve is not done with interest rate increases.
The fun continues and the Fed seems to be driving the cart. What if the next CPI turns out to be high? That could roil the markets even more substantially. The poor reception to the 30-year Treasury sale is another reminder that every crisis lies an opportunity, depending on how it is looked at.
Please don’t panic because I truly believe that we are not going into a recession next year. The market is already pricing cuts in 2024 and while this will be good for markets long term, higher volatility could be a problem for anyone who is not prepared for it. Wow! there are some experts predicting massive rate cuts next year.
I’m a big fan of how the market has gone so far in 2023. I continue to be bullish on risk assets while some may be flocking to cash fearing another meltdown. There are certainly times to rotate some exposure and/or raise cash. However, I’m always more invested than not and that will remain the case. The year-end rally is working in a more choppy fashion.
Life is too short to obsess over what the Fed will do next. While we can’t control the Fed, we can control our reactions to them. I know, I know, at some point some people will be right and will tell everyone “I told you so”.
The algorithms could do anything in the seconds but investors with patience and willingness to take risk when the odds favor them should prosper in the long term. I stress long term because the day-to-day action in the markets is noise.