Last week the S&P 500 closed higher for the seventh straight week, its longest winning streak since 2017. The S&P 500 is now within striking distance of its all-time price high. Last week, the Dow Jones Industrial hit its own new all-time price high.
Gains were primarily driven by investor expectations regarding the Federal Reserve. While the Fed didn’t change short-term interest rates as expected at their meeting last Wednesday, the Fed’s language at the FOMC meeting was interpreted by investors that they should expect even more interest rate cuts next year than they had previously expected. In turn, 10-Year Treasury yields moved below 4% last week. It was just late October that 10-year yields were knocking at 5%. That’s an impressive move in yields and the leading reason IMO for the stock market’s winning streak.
It wasn’t just lower rates that moved markets last week though. Economic data last week was also solid. For starters, Retail Sales strongly beat expectations, up +0.3% month-over-month (expectations were for -0.1%). In turn, with recent strong economic data, the GDPNow forecast from the Atlanta Federal Reserve is now predicting fourth quarter inflation-adjusted GDP to be +2.6% (that’s higher by a whopping 1.4% from the prior week’s reading of 1.2%).
With so many good tidings, investor sentiment continues to grow more bullish. For example, the AAII Investor Sentiment Survey is now the most net bullish it has been in over two years.
Not to be all bah humbug, but consider two things. First, when sentiment gets this bullish, the market typically generates below-average returns in the following months. Second, however, is that the market is expecting positive earnings growth in the year ahead, but also sharp interest rate cuts. Historically, we’ve never seen that combination in a calendar year before. Anything is possible, of course, but’s it’s not probable we’ll see both.
This coming week we get more key inflation data. The November release of the Personal Consumption Expenditures (PCE) price index is this Friday. Expectations are that inflation will continue to move lower. This week will also get updates on consumer confidence, housing, and the last update on 3Q GDP.
Add it all up...
Add it all up...
Stay invested. Stay diversified. Stay disciplined.
The views expressed herein are exclusively those of Orion Portfolio Solutions, LLC d/b/a Brinker Capital Investments a registered investment advisor, and are not meant as investment advice and are subject to change.
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