Saturday, December 9, 2023

The place is This Rally Going?



Earlier than yesterday’s FOMC assembly, I reiterated my view from July 2023 that this climbing cycle was – or at the least needs to be – over.

The Narrative bias driving commentary right now is that this sudden bullishness is the market sussing out the final hike. However this after-the-fact story doesn’t resonate as fact with me, because it seems extra like the ten% market correction of October 2023 has ended. Future discounting mechanisms anticipate market motion; if they’re reacting to them, nicely that’s not precisely a mechanism discounting the longer term, is it?

It is a complicated time for traders; relatively than repeat the clichés, let’s attempt to make some sense of all of the cross-currents.

Federal Reserve: There isn’t any such factor as a “Hawkish Pause.”

That is a kind of phrases that actually annoys me. It brings to thoughts Ralph Waldo Emerson’s perception: “What you do speaks so loudly I can’t hear what you’re saying.”

The FOMC is both elevating, not altering, or decreasing charges, PERIOD. All the chatter, speeches, transcripts, press releases, and so forth. are for many who desire to spend their time sifting via the tea leaves for hints as to what’s coming subsequent. My choice: have a look at what the Fed’s open market committee’s actions are.

To me, “Hawkish Pause” sounds rather a lot like a George Carlin bit on “Pleasant Hearth.”

Secular Bull Market: US shares are within the 5-6th inning of a bull market.

The Pandemic crash and rally was a 34% reset and a continuation of the bull that formally started in March 2013.

BAML’s Chief Fairness Technician Stephen Suttmeier likens the 2020 crash to the fashionable model of the 1987 crash: A considerable crash that occurred 7 years into the beginning of a brand new bull. Historic comparisons suggest this market might have one other 3-7 years to go.

Money in No Longer Trash: TINA is formally over.

525 foundation factors of hikes later, bonds are very enticing and fixed-income traders are incomes a good return on their cash. If you’re in a prime tax bracket and have residency in a high-tax state with robust credit score high quality – suppose Ohio, New York, Massachusetts, California, Connecticut, and so forth. – you ought to be Munis right here. Relying on the specifics a 4.5-5% muni yield is the taxable equal of 8-10%.

These of you searching for revenue may contemplate placing recent cash to work constructing a bespoke muni portfolio, or shopping for the suitable muni fund on your circumstances. (we’re completely satisfied to assist).

Regime Change: The shift from financial to fiscal stimulus.

The period of ultralow charges – that’s something below 2% — has ended. Whereas I anticipate to see charges average later in 2024 or 25, it’s a low chance wager they return to zero.

The ramifications of this are vital: Bonds are actually a competitor to equities; normalized charges may see this rally broaden out from Mega caps to Mid and Massive Caps; the tip of ZIRP may affect company income; increased charges ultimately will damage client spending and CapEx.  Word that these charges are regular for the post-war interval however a bit excessive for the fashionable period.


Given the entire above, I might recommend you 1) preserve a diversified portfolio of equities; 2) decrease your return expectations for these equities; 3) look to diversify globally as nicely; 4) revisit your bond portfolios; 5) contemplate Munis for tax free yield.





Money Is No Longer Trash (October 27, 2023)

Understanding Investing Regime Change (October 25, 2023)

How Many Bear Markets Have You Lived By? (March 3, 2023)

10 Dangerous Takes On This Market (Could 19, 2023)

Farewell, TINA (September 28, 2022)

Secular vs. Cyclical Markets (Could 16, 2022)

Finish of the Secular Bull? Not So Quick (April 3, 2020)

Redefining Bull and Bear Markets (August 14, 2017)

Secular market cycles mirror geo-political, financial and technological problems with period (November 15, 2014)

Is the Secular Bear Market Coming to an Finish? (February 4, 2013)

Trying on the Very Very Lengthy Time period (November 6, 2003)

Bull & Bear Markets


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