Last week was steady as she goes with US markets enjoying a shortened week courtesy of the Thanksgiving Holiday, the main point of interest to MM was the softening of rhetoric from the Fed in their latest minutes:
Fed officials expect to switch to smaller interest rate hikes “soon” – perhaps only a 0.5% move in January after the previous four consecutive 0.75% hikes.
Officials are becoming concerned about the impact on the economy after 2-year bond yields have rallied from basically zero to close to 5% in around 18 months.
As most subscribers know rising bond yields have weighed very heavily on the growth of stocks, with tech front and centre, the problem is term deposits are now yielding more than the S&P500 hence investors need to be confident capital gains are likely moving forward, otherwise, why would they take on the added risk. Over the last 6 months, every time the market became vaguely optimistic around peak inflation/interest rates Fed officials took an almost sledgehammer approach to reiterate their hawkish stance towards reigning in inflation, but in the last week we’ve finally seen some real glimmers of hope that they will ease off sooner rather than later.
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