(CercleFinance.com) – Wall Street is starting the month of December as well as it ended November… even better (the Dow Jones gained +0.82% to 36,250 and the S&P500 +0.6% to almost 5,600Pts) because investors have acquired the almost absolute certainty that Jerome Powell’s remarks of the day – beyond the elements of rigorous language concerning the fight against inflation – confirm that the FED is indeed finished with increases in rate (this was anticipated from November 1) and that the next topic of reflection will concern the timetable for lowering rates.
The market, already in ‘rally mode’, goes ‘full bull’ and there are practically only buyers left and practically no one to hedge.
The supremacy of ‘calls’ over ‘puts’ means that the ‘VIX’ crashes by -2.25% towards 12.60 and for 10 days has reached levels of complacency which have no equivalent other than those observed mid -December 2019.
There is a lot of liquidity in the market despite the asset resale program on the FED’s ‘balance sheet’ because the US Treasury has issued much more liquidity on behalf of the government since June than what has been ‘mopped up’ these last 5 months.
As a result, investors have already completely forgotten the downward revision of OECD expectations concerning the sharp slowdown in activity in 2024 with GDP reduced from 2.4% to +1.5%: there is so much of liquidity and optimism that the idea of a recession, even moderate, is completely eliminated.
‘Goldilocks’ is back for 2024: inflation will continue to fall but GDP will remain much more vigorous than what was envisaged a month ago when US ’10-year’ rates were flirting with 5%.
The easing of rates this Friday was once again spectacular then the yield on T-Bonds collapsed by -14Pts to 4.2050% (i.e. -26Pts on a ‘weekly’ basis, the equivalent of an additional easing of 25Pts by the FED anticipated for 2024).
This relaxation has boosted banking stocks (and in particular regional establishments in great difficulty since mid-March): Zions soars by +7.6%, Keycorp by +6.7%, Comerica +6.6%, Regions +5.4%, Citizen +4.6%, Goldman Sachs +2%
The Nasdaq (+0.3%) benefited less from the drop in rates and was weighed down by Marvel -5.3%, Intel -2.2%, Microsoft -1.2%.
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