Last week was a very good one for US stocks, European stocks, bonds and gold (gold has reached a new all-time high today). All responding to the expectation that rate cuts may be coming next year, possibly as early as March. The Dollar Index was lower and the yield on the 10-yr US Treasury fell to its lowest level since the start of September.
November as a month was also a favourable one for investors for the same reasons.
The week ended on a strong note with markets brushing aside Fed Chair Powell’s warning on Friday that anticipation of lower rates was “premature”. The futures market is now pricing in a 65% chance of a cut in May.
Data last week: The US ISM Manufacturing PMI came in lower than anticipated indicating contraction in factory activity. This will be good news for the Fed – as was the latest US PCE data (the Fed’s favoured inflation measure) which rose by 3.5% in the 12 months to October – the lowest since April 2021.
With inflation trending lower, Fed commentary generally less hawkish, and companies reporting strong earnings, it’s not surprising that bullish sentiment is rising fast. Last week, the percentage of bullish responders in the AAII poll (American Association of Individual Investors) reached 48.8% – the highest reading since early August when US stocks hit their peak for the year-to-date.
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