*I appeared on the Schwab Network this week to discuss some earnings reports and you can see the appearance if you click HERE.
Only one more Fed meeting for 2023 later this month and it looks like it will be third meeting in a row with no rate hike. That will certainly signal that this rate cycle is coming to a close and it looks like the goldilocks scenario of no recession, low(er) inflation, falling bond yields and higher stocks is growing as a consensus scenario.
The villain of 2023 has been the yield curve as we nearly had a banking crisis in March as high T-Bill yields were too attractive to ignore and caused massive outflows from the banking sector. But in the latter half of the year it was the 10Yr yield and a rising deficit that dumped cold water on the markets.
In the chart below of 10Yr yields, we can see a 3.5+ year rise from the 2020 low of 0.37% may have peaked (for now) in October of this year. The momentum technicals at the bottom of the chart are pointed towards lower yields and a typical re-tracement is the ‘38.2%’ which aligns perfectly with the yellow wave 4 at 3.909%. If true, we should yields move towards this level and maybe even a bit lower in the coming months.
Goldilocks Is Knocking
The fall in yields is welcomed by stock investors as a sign of a Goldilocks recovery and the end to the Fed’s rate cycle. And we can see that the rebound from the October 27th low looks like a good start to that scenario. The March 2020 high looks like it will be re-tested in December as the market keeps grinding higher over the past two weeks. To note, the large-cap tech stocks are taking a back seat here as valuation multiples are high now for these companies but many beaten up stocks down 50% or more could carry the ball over the goal line into 2024.
A break of the March 2022 high would lend credence to the argument for a rally that will last into next year and maybe set a new high near 5000. OR we could fail and roll over but the momentum here is hard to deny. The last 5000 high in an index I remember was the NASDAQ in March of 2000 but I digress…
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