The Fed decided not to validate a new rise in reference rates at its last meeting which motivated the stock market to enter a phase of optimism. So, this day, The benchmark yield on 10-year Treasury bonds added its fifth drop in six sessionswhich motivated, in turn, so much the S&P 500 as Nasdaq they had his longest winning streak in two years. However, it is worth asking, Will this bullish rally on Wall Street last? Let’s look at three key points to analyze what could happen in the last 2 months of the year.
The Fed, inflation, and the strength of the economy
Expectations that the Fed’s bullish cycle is coming to an end have gained strength in recent days. Markets project a 90.2% probability that Fed to hold rates steady again at December policy meetingup from 68.9% a week ago, according to CME’s FedWatch tool.
to understand what the Federal Reserve will do facing the end of the year, You have to look at the US macroeconomyand mainly two key measurements: inflation and the labor market. “The advance in prices continues to moderate its rise year-on-year, with the latest data bringing some relief in both the general and core measurement. However, the battle is still not wongiven that the indices remain above the 2% objective established by the monetary authority,” they specified from TSA Stock Market.
Regarding the labor market, from the same financial institution, they said that it still shows solidity and at the same time keeps salaries high. “Analysts agree that the latter continues to drive people’s consumption, driving the economy as a whole, given that it represents two-thirds of the US GDP. It was recently known that this metric showed an advance of +4.9% in the third quarter of the year, higher than expectations and above all above the +2.1% recorded in the previous quarter,” they explained.
These data put pressure on the Fed’s actions. “Its members are still debating the need for a further increase in the cost of money, although they agree that it must remain elevated at restrictive levels for longer to achieve the objective of price stability. “They recognize that this decision will allow the economy to cool and grow below the long-term average, moderating the rate of inflation.”they explained from TSA Bursátil.
For its part, Investing in the Stock Market (IEB) in its latest report stated: “Last week the Treasury published the update of its quarterly financing needs. Since a major negative surprise was generated in the previous update on July 31, there was concern about what could have happened, but “On this occasion, there were no surprises.”
The return of Treasury bonds
The S&P 500 marked its seventh consecutive day in the green, and the Nasdaq recorded its eighth straight advance this day, which generated the longest streak for each index in two years. At the same time, The Dow Jones gained for the seventh consecutive session, the longest since a 13-session streak in July. However, Variables have suffered strong declines in recent months.
Until it became known that the Fed decided to maintain reference rates on equity was harmed. The S&P 500 closed an unfavorable October, with a decline of -2.2% and chained three consecutive months with a negative bias (-1.8% in August and -4.9% in September). In fact, The three main indices averaged falls of -8.7% in the August-September-October period.
It should be noted that The 10-year US Treasury rate had peaked at almost 5% on October 19a level not seen since July 2007. Only after the Fed’s decision became known did yields begin to fall. “We have been warning that there were technical signals that heralded at least a lateralization,” they said from IEB. “The technical reading coincided with the events of the Treasury and the FOMC, which gave it support from the fundamentals,” they added.
Therefore, since TSA Stock Market they wonder, Is it time to take advantage of low prices and position yourself in stocks? The opinions about it they are mixed. From Merrill Lynch they pointed out that seasonality plays in their favor in the last quarter of the year. On the opposite side, some analysts maintain that the trade off facing the Federal Reserve creates uncertainty about the next steps to be taken in monetary policy.
The balance sheets of the companies
From IEB they assured that companies’ earnings season continues to positively surprise. On Friday, at least 403 companies that are part of the S&P500 index published their results for the third quarter of 2023. 81.6% reported earnings above expectations of analysts, which compares with the historical average of 66.5% and that of the last four quarters of 73.6%.
“While the corporate reporting season is showing better figures than initially thoughtthe relationship between The earning yield of the S&P 500 and the performance of the Treasury 10Y calls for maintaining caution and diversification within the portfolios. By sectors, the highest weightings could be located in those linked to the basic consumption of people or health companies, incorporating companies linked to energy. Of course, opportunities can be found in other specific roles and sectors, although this will depend on the risk that each individual investor is willing to take,” they closed from TSA Stock Market.
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