Nobody is crazy. There is really nothing to “see” here and I’m not doing much these days. Things have slowed down a bit. Still, most markets finished the week in the green as inflation cooled in the US and eurozone. The S&P 500 added +1.0% and Nasdaq rose +0.5% as the Fed’s preferred inflation gauge showed the rate of inflation slowed in October. The war on inflation is largely over, if not won (drum roll please).
The rapid decline in long-term interest rates is what powered the rally in stocks and bonds after the 10-year yield peaked at 5%. November was strong enough to erase all of the losses from August, September, and October. Investors are flocking to stocks again and this elicits concern in some corners to the extent it’s a signal of complacency.
I would have said the same damn thing if I were him. As expected, Chairman Powell tried to temper the rally on Friday by suggesting that the Fed may have to raise rates further if appropriate and that speculating about rate cuts was premature.
Elsewhere, the UK’s FTSE 100 added +0.9% as house prices continued to recover and the manufacturing sector showed signs of improvement in November. Germany’s Dax added +2.7% while pan-European Stoxx 600 gained +1.7% as eurozone inflation cooled in November.
Meanwhile in Asia, Hong Kong’s Hang Seng dropped -4% while China’s Shanghai Composite ended the week flat amid ongoing concerns about China’s economic recovery. Bitcoin and other cryptocurrencies continued to rally and the strong return goes to show what can happen when consensus gets too extreme in one direction. Palladium prices fell as the dollar gained ground.
