Monday Macro – The Powell pivot, S&P 500 at 6000 by the end 24 (!), disinflation emerges
An optimistic end to 2023 is in sight. The Santa Rally looks middling to strong and even the UK might be due some good news
Programming notes – as I’m sure you all have much better things to do over the festive break, there won’t be any letters starting Christmas Day, Monday 25th December for a little over two weeks. I’ll restart with my favorite investment ideas on Wednesday 10th January 2024.
And of course, festive greetings to you all especially for those who’ve generously subscribed to the paid-for version…
1. A positive end to 2023 and analysts are even more positive about 24
2. The Powell pivot has helped enormously
3. What Powell said
4. US rate cuts in 24
5. US corporates feeling disinflation
6. Chinese deflation is also feeding through
7. Ed Yardeni thinks the S&P 500 could hit 6000
8. Even the UK is experiencing disinflation
9. Singer reckons UK inflation could be under control by summer next year
10. Equities looking strong, especially tech stocks, according to Ekins Guinness
We’re ending 2023 on a positive note as I write this. From the start of December, the American benchmark index, the S&P 500 is up 2.71%, more than the FTSE All Share index which is up 1.5%, and the FTSE 100 up only 1%. The tech-heavy NASDAQ Composite index has soared away and is up 3.56%. Interestingly the S&P Mid Cap 400 index is up even more than the benchmark S&P 500 – over 4.5% in the month so far. And not far behind is the UK’s very own mid-cap index, the FTSE 250– up 4.48% month to date.
The catalyst for all this excitement is the US Federal Reserve, which last week confirmed its Powell pivot i.e that rates are likely to come down. The Transcript newsletter has an excellent summary of last week’s gnomic words of wisdom from Chair Powell:
"If the economy evolves as projected, the median participant projects that the appropriate level of the federal funds rate will be 4.6 percent at the end of 2024, 3.6 percent at the end of 2025, and 2.9 percent at the end of 2026, still above the median longer-term rate." - Federal Reserve Chair Jerome Powell
But Jerome Powell isn’t declaring victory quite yet
"It is far too early to declare victory, and there are certainly risks. It's certainly possible that the economy will behave in an unexpected way. It has done that repeatedly through the post -- in the post-pandemic period. Nonetheless, where we are is we see the things that I mentioned." - Federal Reserve Chair Jerome Powell
More rate hikes aren’t off the table
"...we added the word "any" as an acknowledgment that we believe that we are likely at or near the peak rate for this cycle. Participants didn't write down additional hikes that we believe are likely, so that's what we wrote down. But participants also didn't want to take the possibility of further hikes off the table." - Federal Reserve Chair Jerome Powell
The Fed thinks Inflation is still too high
"Inflation has eased from its highs, and this has come without a significant increase in unemployment. That is very good news. But inflation is still too high, ongoing progress in bringing it down is not assured, and the path forward is uncertain." - Federal Reserve Chair Jerome Powell
Take this as a signal that the Fed is ready to start talking about thinking about lower rates
"...when it will become appropriate to begin dialing back the amount of policy restraint that's in place. So that's really the next question, and that's what people are thinking about and talking about...No one is declaring victory. That would be premature, and we can't be guaranteed of this progress. So, we're moving carefully in making that assessment of whether we need to do more or not. And that's really the question that we're on, but of course, the other question, the question of when will it become appropriate to begin dialing back the amount of policy restraint in place, that begins to come into view, and is clearly a topic of discussion out in the world and also a discussion for us at our meeting today." - Federal Reserve Chair Jerome Powell
Did we have a soft landing? The economy actually had a very strong year
"I think forecasters generally, if you go back a year, were very broadly forecasting a recession for this year, for 2023, and not only did that not happen, that includes fed forecasters and really essentially all forecasters, a very high proportion of forecasters predicted very weak growth or a recession. Not only did that not happen, we actually had a very strong year, and that was a combination of strong demand but also real gains on the supply side" - Federal Reserve Chair Jerome Powell
More HERE from The Transcript(subscription required)
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