Broker Check

Weekly Market Update Dec 1, 2023

December 02, 2023

Weekly Market Update December 1, 2023
Dow Jones Industrial 36,246 +2.4%, S&P 500 4,595 +0.8%,
Nasdaq Composite 14,305 +0.4%%, US 10-Year 4.21%, Crude Oil $74.24

Equity markets continued with upward momentum through the end of the week, with falling interest setting the stage for a “Santa Clause Rally.”  The 10-year US Treasury Yield ended the week at 4.23%, a dramatic fall from the October high of ~5%.  Recent economic releases indicate the Fed’s tightening cycle is working and is causing a slowdown in inflation.  The Commerce Department on Wednesday provided evidence for optimism:  U.S. GDP (Gross Domestic Product) rose at a 5.2% annualized rate in the 3rd quarter (revised up from previously reported 4.9%) and was the fastest expansion since 4Q 2021.


At the same time, the report also confirmed inflation is trending lower, with downward revisions to several sectors monitored by the Fed.  The consensus among economists and analysts is that the Fed is done raising rates, and many are calling for rate CUTS as early as March of next year.  The chart below shows what the market expects for rate cuts, with Federal Funds Futures rates displayed below.

 

 

The top represents where Fed Funds Futures were priced three months ago; the middle line one month ago, and the bottom today.  To summarize the above, the market is pricing in nearly a 50% chance of a rate cut by the end of March and about a 75% probability at the end of April. 

 

This bodes well for the outlook on equities, and the recent drop of the 10-year Treasury yield overlayed with the S&P 500 Index shows just how quickly this relationship can move. (charting source: Yahoo Finance)

 

3-Months – 10Yr US Treasury Yield (Blue) vs S&P 500 (Green)

6-Months – 10Yr US Treasury Yield (Blue) vs S&P500 (Green)

 

 Year to Date -- 10Yr US Treasury Yield (Blue) vs S&P500 (Green)

 

For investors who wanted to stay away from equities over the last year and took advantage of Treasury Ladders (which we whole-heartedly endorsed), you now have another option.  When some of your bonds mature, you may want to consider re-deploying some of these funds back into the equity market.
We knew there would be a “lag effect” from higher interest rates that would eventually be revealed through economic data releases.  It appears that we have reached that point, and the outlook for equities has become much brighter.

 

 

 

 

 

Have a great weekend,

 

Marshall