- Moving the markets
The Fed gave the markets a big gift by signaling that it will slash rates more than expected next year. The central bank kept the key interest rate unchanged for now, but projected three cuts in 2024, as inflation has cooled down from its recent highs.
This was music to the ears of investors, who have been eagerly waiting for the Fed to ease its monetary policy and boost the economy. The Santa Claus rally may not be over yet.
The Dow, which had suffered its worst year since 2008 due to the Fed’s hawkish stance, soared to a new record high after the announcement. The blue-chip index has outperformed the S&P 500 and Nasdaq in the past month, as hopes of lower rates increased.
The Fed’s dovish turn was also supported by the latest inflation data, which showed that both producer and consumer prices were flat or slowing in November. This eased the fears of runaway inflation that had spooked the markets earlier this year.
However, not everything was rosy in the financial world. Bond yields plunged, as investors rushed to buy safer assets, pushing the 2-year yield down by the most since the banking crisis in March. The 10-year yield found support at 4%.
The stock market rally was also driven by a massive short squeeze, as traders who had bet against the market had to cover their losses.
But the so-called “Magnificent 7 stocks” – the tech giants that had led the market for years – did not join the party.
The dollar took a dive, as lower rates make the greenback less attractive. Oil prices bounced back above $69, as lower rates could boost demand. But the star of the day was gold, which surged 2.3% and beat the major indexes by a wide margin.
The Fed’s sudden change of course on rate cuts in 2024 raises a curious question: “Did someone remind Powell that 2024 is an election year?”
2. Current “Buy” Cycles (effective 11/21/2023)
Our Trend Tracking Indexes (TTIs) have both crossed their trend lines with enough strength to trigger new “Buy” signals. That means, Tuesday, 11/21/2023, was the official date for these signals.
If you want to follow our strategy, you should first decide how much you want to invest based on your risk tolerance (percentage of allocation). Then, you should check my Thursday StatSheet and Saturday’s “ETFs on the Cutline” report for suitable ETFs to buy.
3. Trend Tracking Indexes (TTIs)
The Fed meeting delivered a positive surprise for the market, as it signaled more rate cuts than anticipated. Instead of the expected two cuts, the Fed now plans to lower the interest rate three times next year. This boosted the market performance, as the major indexes soared and lifted our TTIs along with them. The market mood is very optimistic.
This is how we closed 12/13/2023:
Domestic TTI: +7.55% above its M/A (prior close +5.30%)—Buy signal effective 11/21/2023.
International TTI: +5.91% above its M/A (prior close +4.84%)—Buy signal effective 11/21/2023.
All linked charts above are courtesy of Bloomberg via ZeroHedge.
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