For the past several months, the bond market was driving the bus…
The yield on the 10-year U.S. Treasury note surged up to around 5% in mid-October.
That pushed the S&P 500 Index into an official “correction” in late October. The benchmark index was down more than 10% from its peak in late July through that point.
But things have changed over the past few weeks…
In short, Federal Reserve Chair Jerome Powell was recently talking tough about the potential for more interest-rate hikes to combat inflation. But the bond market wasn’t buying it…
The 10-year Treasury’s yield has dropped roughly 50 basis points to its current level around 4.5%. At the same time, declining 30-year home mortgage rates, a weakening U.S. dollar, and a continued drop in oil prices have led to a sharp, multiweek rally for stocks.
The S&P 500 has now climbed about 9% off its October 27 bottom. And notably, this rally is happening after a robust third-quarter earnings season…
Overall, earnings for S&P 500 companies were stronger than expected in the quarter.
These companies saw earnings growth of 4% year over year. (And excluding energy stocks, it was an even better 10%.) That was the first year-over-year gain in more than a year.
U.S. GDP grew more than 4% in the quarter as well.
And despite “hawkish” comments from various Fed officials (including Powell last Thursday), the data suggests that inflation continues to abate. We got confirmation of that this week…
I’m talking about the release of the October data for the Consumer Price Index.
The report came out Tuesday morning. It revealed that year-over-year inflation is still cooling. So now, it means another interest-rate hike in December is likely off the table.
In the end… the “earnings recession” in the U.S. economy is now over.
At some point in the next three months, the Fed will shift its focus from stifling inflation to being more accommodating to economic growth. That’s important…
It’s a “bullish” setup for the stock market heading into 2024.
Last month, I told a group of our paid subscribers…
We’re now in the sweet spot of the year when stocks often make a “V-shaped bottom.” Historically, they rally in November and December to end the year.
That’s happening right now…
The S&P 500 is grinding out progress. As I said earlier, it’s up roughly 9% from its bottom in late October. And importantly, it remains up around 17% so far this year.
The “rolling bull market” is still alive and well. We survived the recent correction. And when we put everything together, I’m confident that stocks will trade higher into the end of 2023.
And if you’re looking for places to put money to work, consider this point…
The strongest stocks in the technology and financial sectors have led the market’s rally off its late-October low. And I believe they’ll keep leading the way over the next two months.
Good investing,
Marc Chaikin
P.S. Earlier this week, I sat down with an expert in a little-known strategy that I’ve spent 30 years studying myself…
We wanted to determine exactly where stocks (and gold) could be heading next. And we found that something big is likely coming in early 2024.
If you missed our discussion, that’s OK. For a limited time, you can watch the full replay right here.
