Closing Thoughts for the Week

The Fed’s hawkish rate cut seemed to finally spook the markets into believing that re-inflation should be taken more seriously. I thought the Bank of Japan’s meeting this week would have created a little more suspense in the markets this week, but it didn’t deliver any surprises, nor come particularly close to doing so. Given all of the central bank activity this week, I think conditions are lining up for more volatility ahead than they were just a week ago.

Last week marked a continuation of the trend we’ve seen recently, which has featured renewed leadership from large-caps, growth and high beta stocks. In many ways, the market looks very much like it did in 2023. The November inflation numbers in the U.S. came in as expected, which is to say that inflation remains sticky at best and rising at worst. It seems that China isn’t learning its lesson from a few months ago.

A rate cut at the Fed meeting in less than two weeks is looking more and more like a done deal. The market is still pricing in 2-3 cuts next year and even that might be optimistic. The drop in the 10-year Treasury yield suggests that inflation bets might be easing and investors might be growing a bit more concerned about economic conditions.