Here are the takeaways from today’s Morning Brief. Sign up to receive the following in your inbox each morning:
After the Fed cut rates by 50 basis points (bp) in September, the bullish euphoria that arose from the possibility of an early return to neutral rates has faded. But that has been replaced by another bullish sentiment that we are all familiar with. It’s the strength of the hot economy that has helped drive markets all year until the rate cut.
Concerns about inflation and a re-acceleration of the economy have resurfaced following a series of notable data (September jobs report, consumer price index, strong retail sales, weekly new jobless claims calming). However, this strong performance has not helped, if not energized the market. You’ve done well under the high interest rates and endless no-landing comments of the past few years (thank you very much). A strong economy is good for stocks.
All of this has kept the S&P 500 index hovering near all-time highs all week, now well above 5,800, and the index increasingly beating year-end expectations, with UBS’s 5,850 announced on Tuesday Similar to this figure, there has also been an upward revision since then.
I feel like the atmosphere is different from a month ago. But as this week’s chart shows, there hasn’t really been much change in terms of expectations, especially on the downside.
The latest research from Bank of America Global Fund Managers shows that the likelihood of a soft landing may be decreasing slightly. However, hard-landing respondents also declined, dropping to single digits for the first time since June, with only 8% expecting a recession in the next 12 months.
Checking in with CME’s FedWatch tool shows very little change. The overwhelming view is that the Fed will continue to cut rates in November, with the tool on Friday showing a 91% chance of a 25 basis point cut.
Reconciling another potential reacceleration of the economy and the market’s near certainty of rate cuts seems difficult to reconcile. But that’s not the time to be reminded of how high interest rates still are, as I wrote in Chart of the Day earlier this week. As Minneapolis Fed President Neel Kashkari said this week, interest rates remain “restrictive across the board.”
Jason Furman, former chairman of the Council of Economic Advisers under President Barack Obama, told Yahoo Finance that he believes inflation is a bigger problem than the recession right now. However, a current Harvard University professor mused, “The Fed needs to take a tightening policy, but it doesn’t need to take a tightening policy as much as it did last year.”
story continues
The high state lasted longer than the previous low state.
Ethan Wolff-Mann is a senior editor at Yahoo Finance and runs the newsletter. Follow him on X @ewolffmann.
For the latest stock market news and in-depth analysis of price-moving events, click here
Read the latest financial and business news from Yahoo Finance
simple morning image
