Whilst the S&P 500 posted a negative week – it was a strong month for equities. The world’s largest Index managed to add 4.8% for the month – hitting an intra-month record high of 5339. That’s four of five winning months to start 2024. Perhaps completely enamored by all things AI (more on this in my conclusion) – investors basically shrugged off sharply higher yields and a series of disappointing inflation prints to push prices higher. What could go wrong? At the end of every month – it pays to extend our time horizon to the (less noisy) monthly chart. And whilst the weekly chart is useful – it tends to whip around. Longer-term trends (and perhaps investments) are often better examined using this lens.
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For Now… Bad News is Still Good NewsÂ
Never confuse the stock market for the economy. They are two very different things. And whilst there are times when the two will trade in unison – there are also plenty of occasions when they diverge. Now is possibly the latter. For example, this week we had a plethora of ‘less than positive’ economic news. But it didn’t stop the market surging back to near record highs. Why? Every bit of bad (or soft) economic news is a step closer for the Fed to lower rates.
Powell Appeases the Market… Or Does He?
For me, there were two (big) questions for the Powell this week: (1) are rate hikes off the table – given faster-than-expected inflation and continuing economic strength? and (2) when will the Fed commence QT tapering (and by how much)? Powell was unequivocal on possible rate hikes… forghedaboudit. Equities cheered. But why remove optionality? Why Powell is so convinced we don’t see a re-acceleration in inflation? Admittedly it’s a lower probability outcome… but we can’t rule it out. But he apparently can…