By Scott Poore, AIF, AWMA, APMA
Chief Investment Officer, Eudaimonia Group
The Fed provided the market with a Christmas gift last week, as equities continued the march higher. Though the Fed kept the Fed Funds rate unchanged last week (as expected), the "Dot Plot" for 2024 and 2025 projected future cuts to the Fed Funds Rate. In fact, during the Wednesday presser, Fed Chairman Powell stated it's now a question of when to "begin dialing back" interest rates, while NY Fed President Williams stated the Fed is not discussing cuts. I guess Fed members need to get on the same page with their comments. Regardless, equities spiked higher on Wednesday. More good news on the breadth front, as market breadth increased 4-5x over the past week and 21% of large cap stocks made new highs. Small cap equities out-paced other major asset classes for the 2nd consecutive week. Global equities also saw many international stocks make fresh 52-week highs.
On the economic front, financial conditions continue to support the "soft landing" premise. The National Financial Conditions Index loosened again last week and is no where near the elevated levels of August 2007 (just a few months before the 2008 Financial Crisis began) and risk is at a much lower level today than then. Inflation, as measures by CPI & PPI, dropped again in November. Retail Sales were stronger than expected and higher year-over-year. The Labor Market continues to be strong, supporting further consumer spending. Lower interest rates and flat-to-declining inflation will lead to economic growth heading into 2024.
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