This is the takeaway from today’s morning briefing, and what you can do subscription Received in your inbox every morning with:
The bullish euphoria that came from the prospect of a quick return to neutral interest rates after the Fed’s 50 basis point cut in September has faded. But it’s been replaced by a different bullish sentiment, one we all know well: the strength of the hot economy, which helped boost the market all year long — until that downturn.
Despite the return of inflation concerns and the re-acceleration of the economy after a series of hot data (September jobs report, CPI, hot retail sales, and calmer weekly jobless claims), this strength has done nothing if not supported the market. It has performed just fine (thank you very much) under the high interest rates and endless commentary of the past few years. A hot economy is good for stocks.
All of this has kept the S&P 500 hovering around its all-time high all week, which is now above 5,800, with the index beating more and more year-end forecasts — and their own. Subsequent upward reviewssuch as the 5,850 figure UBS published on Tuesday.
The mood seems different than it did a month ago. But as the chart for the week shows, not much has really changed in terms of expectations – especially to the downside.
The latest survey of global fund managers from Bank of America shows that the odds of a soft landing may have decreased slightly. But takers fell just as hard, falling into the single digits for the first time since June, with just 8% expecting a recession in the next 12 months.
Log in with CME’s FedWatch tool It also shows little change. The belief that the Fed will continue to cut interest rates in November remains overwhelming, with the tool showing a 91% chance of a 25 basis point cut on Friday.
Reconciling these two things – another economy potentially accelerating and interest rate cuts almost certainly coming to the market – seems difficult. But not when you remember how high interest rates are, as we wrote earlier this week in today’s chart. As Minneapolis Fed President Neel Kashkari said this week, interest rates remain “broadly constrained.”
Jason Furman, former chairman of the Council of Economic Advisers under President Barack Obama, told Yahoo Finance that he sees inflation as a bigger problem than recession right now. But the current Harvard professor saw that although the Fed needs a hawkish policy, it does not need a hawkish policy as it was last year.
High – but lower than it was – for longer.
Ethan Wolf Man He is a senior editor at Yahoo Finance, managing the newsletters. Follow him on X @ewolffmann.
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