It’s really not as simple as saying good news about the economy is viewed as bad news on Wall Street. Yes, the S&P 500 fell 1.5% on Friday after employment rose by 256,000 in December, 100,000 more than expected, and the unemployment rate edged down to 4.1%. But the petulance of small markets stems not so much from a dislike of the boom as from concerns that it may not be sustainable given bond yields and the Fed’s response. What the market knows is that since the outbreak, economic data released at the beginning of each year has been red-hot, only to slow down a few months later, sometimes even triggering “growth scares.” The concern is that the bond market and the Fed will extrapolate strong employment data and tighter financial conditions than important parts of the economy (housing and manufacturing) can handle. Markets are uncertain about how the impending policy mix of tariffs, immigration restrictions and deregulation will change the interplay between interest rates, inflation, GDP growth and risk appetite. It brings markets to a somewhat troubling crossroads, where typical mid-cycle concerns about the durability of the economic expansion intersect with aggressive market pricing for future growth and erratic policy settings. Still, stocks have only tested the bottom of their post-election range, with the S&P 500 spending much of the past 15 trading days within the range of Nov. 6 (the day after Donald Trump’s victory) . .SPX 3M mountain S&P 500, 3-month 10-year Treasury note yields have risen to April highs and are in the upper range of many bond fair value estimates, but from a technical perspective, yields appear to have been pulled stretch. Given the magnitude of job growth, Friday’s rise in the 10-year note from 4.68% to 4.76% is hardly evidence of an outright shock and price dislocation, but simply an extra boost to where the market has been for months. To the extent that gains in yields and the U.S. dollar are largely confirmed, driven in large part by strong non-farm payrolls data, this has nonetheless led to markets pricing in a near-term rate cut. There is nothing unpopular in and of itself about the fact that macro factors are making the market worried that the Fed will be on hold. I will continue to point out, until reality renders this observation meaningless, that during the much vaunted soft landing, stock market surge, and productivity boom of the mid-1990s, the Fed acted aggressively in cutting interest rates, cutting rates only in 1995 and early in the year 3 times. Given current nominal GDP growth, even a 4.75% U.S. Treasury yield does not appear to represent a level of punishment or serious mispricing of stocks, even though higher inflation-adjusted yields should attract fundamental asset allocation buyers. Credit markets remain firm, sending a reassuring macro message, but rising U.S. Treasury rates mean yields on high-grade corporate debt are fairly safe, near 6%. Henry McVey, global head of macro at KKR, had this to say about Friday’s jobs report: “We think the dollar is unique. Our regime change thesis, which is faster nominal growth and higher inflation Resting heart rate, will continue to play a role over the -5 year term, but again, with yields high enough to attract more buyers, given that means 30-year mortgage rates are above 7%, can homebuilding. Out of trouble? Or is the real estate cycle no longer synonymous with the economic cycle? Will the rise of the dollar at some point lead to a breakdown in global asset markets due to a widespread belief in US economic exceptionalism? Can artificial intelligence investment and construction boost aggregate growth rates without putting additional pressure on the housing and commodity production sectors? The reality is that these changing macro factors are interacting with markets that are moving toward long-term extremes in valuations. The market just posted one of its best two-year gains in history, with investors broadly backing a bullish 2025 outlook — just as an unstoppable policy path is starting to undermine near-term belief. Bull trend intact by all measures? Indicators suggest that the market scenario should be less generous heading into 2025, even if it remains on an upward path. Bank of America technical strategist Stephen Suttmeier made a similar point, saying. : “The theme for 2025 is that the S&P 500 could become a victim of its own success. After two strong years in 2023 and 2024, the risk of mediocrity increases. A widely circulated optimism The talking point is that over a three-year period, the S&P 500’s performance has been middling, so the broader market hasn’t been particularly stretched. This is mainly because the three-year review coincides with the market peak before the 2022 bear market, which is particularly interesting. Not a quick start. However, as this chart shows, if the S&P 500 remains flat over the next nine months until the third anniversary of the October 2022 low, the gains over the past three years will be under the upper limit of the index. Week will see the release of the Consumer Price Index (CPI) inflation report and the early edge of corporate earnings season. Given the recent hawkish data and recent aggressive bond market moves, it’s reasonable to assume that CPI is reasonably expected to be dovish. Room for pie. Fourth-quarter earnings are expected to grow about 11.7%, the fastest pace in three years, which should be better than nothing given the broader macro backdrop and the company’s typical pattern of beating estimates. Still, Ned Davis Research strategist Ed Clissold said the “earnings environment is likely to be the toughest in three years,” largely due to more aggressive growth forecasts with less room for surprise. Small, as well as large tech growth, slowing interest rates and rising interest payments. See the pattern here? Things are pretty good, but people have been expecting this to continue for a while. It all helps explain why markets have become harder to please and more volatile in recent weeks. It’s too early to say that this period of hesitant exodus is the beginning of something worse to come – especially since this exodus has pushed the median stock down nearly 8% since Thanksgiving, which It is a way for the market to eliminate high expectations for prices.
Behind the stock sell-off and whether the bull market is at risk | Real Time Headlines
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