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November 6, 2023

 “Stock market doesn’t only teach how to make money but it also teaches lot about life, patience, persistence and wisdom.”

Raj Mishra

Ho-Ho-ho- how did I know? Is it time to crow? Is the Santa Claus rally I argued for beginning? Well, after last week, it certainly looks like the bulls were let out of the pen and investors returned to buying just about anything in the markets last week.

The Dow scored its biggest weekly percentage gain since October 2022, while the S&P 500 and the Nasdaq had the biggest week since November of 2022. For the week, the S & P 500 rose 5.9%, the Dow Jones Industrial Average soared 5.1% and the Nasdaq exploded up 6.6%, Internationally the FTSE 100 gained 1.73% (as the Bank of England followed the Federal Reserve and held pat on interest rate hikes), and the MSCI-EAFE gained 1.25%.  The 2-year treasury yield ended at 4.879% and the 10-year yield retreated to its biggest weekly decline since March, finishing Friday at 4.557%.

What caused the turnaround from the past 3 months (and a poor October)? First, one of the main takeaways from Fed Chairman Jerome Powell’s press conference and the central bank’s policy statement last Wednesday is the growing possibility that the rate-hiking cycle is already over. Despite the fact Chairman Powell was still cagy about the December meeting, “[t]he Fed’s latest policy statement and Chair Powell’s opening comments to his November press conference open the door for the Fed to end the current rate-hike cycle with interest rates at their current level, rather than hiking more,” said Bill Adams, chief economist for Comerica Bank.

It appears the market is more and more confident that the Fed is done hiking rates, plus The U.S. added a modest 150,000 new jobs in October in a sign of a cooling demand for labor, as higher interest rates take a bite out of the economy. Economists polled by The Wall Street Journal had forecast 170,000 jobs. And as wage inflation is a key metric the Federal Reserve is attentive to, that makes a case for less wage inflation and therefore makes an argument to stop raising interest rates.

The jobs report, released Friday by the Labor Department, showed growth was a little below expectations and a lot below last month’s number, shows a normal pace for an economic expansion which should allow inflation to continue easing.  “The good news here is that the slowdown will likely keep the Fed on the sidelines going forward. One of their key concerns has been an overheated economy, especially after last quarter’s GDP growth, and this suggests that problem is going away,” said Brad McMillan, chief investment officer for Commonwealth Financial Network, in a note.

What about the recession? An ISM barometer of U.S. business conditions at service-oriented companies such as retailers and restaurants slowed in October to a five-month low of 51.8%, suggesting the economy has softened. The reading was below the 53.0% forecast of economists polled by The Wall Street Journal. The index recorded 53.6% in September. For a stock market holding out hope that the Federal Reserve may soon pivot to interest rate cuts, rather than hikes, the jobs report certainly delivered. That said, the unemployment rate at 3.9% is half a percentage point above its level nine months ago, which has been a firm recession signal, according to Michael Darda, chief economist, and market strategist at Roth MKM. “Anytime that kind of a move upward has occurred over a nine-month interval, the U.S. was in recession or on the cusp of one,” Darda writes. “Of course, the Wall Street consensus will simply tell us that it’s ‘different this time’ just like it’s ‘different this time’ for the yield curve, money growth, the Fed rate hiking cycle, etc.”

As for bonds, Andrew Brenner, head of international fixed income at NatAlliance Securities, states, “[t]he bear market trend in bonds looks over for now, or at least stalled.” Prices of stocks and bonds rose this week after the U.S. Treasury set plans for less debt issuance on the long end of the yield curve than anticipated, the Fed announced that it was it keeping it benchmark rate steady, and some softer-than-forecast economic reports.

Going Forward, Investors will be monitoring corporate earnings season for the third quarter. A rally in the last two months of the year may hinge on how this earnings season goes. So far, apart from Apple, it looks pretty good as most are reporting better than expected earnings and just about every sector of the market rallied last week. Inflation still is an issue particularly for the average American, now it seems that only for inflationary pressures to remain stubborn, forcing the Fed to resume its hikes.

Finally, in other news, Joining Michael Milken, and Bernie Madoff in high finance infamy, FTX founder Sam Bankman-Fried, who just over a year ago was the king of the crypto world and a multi-billionaire before turning 30, was convicted of siphoning off billions of dollars in customer money and using it to build his own empire of enormous wealth and power, and political influence. The conviction of seven counts related to fraud and money laundering marked the end of a stunning reversal of fortune for Bankman-Fried from a mop-topped crypto wunderkind hobnobbing with A-list celebrities and politicians, to a convicted felon responsible for plundering the accounts of over a million customers of his crypto exchange. (MarketWatch)

I wonder if all those democratic politician’s who received the stolen money as contributions will return it to the poor investors who got taken… don’t hold your breath.