Better-than-expected CPI is set to light a fuse under Wall Street stocks, as some see it as helping keep the Fed in its perceived no-more-hike box.
With bond yields the data may also keep driving that end-year equity rally theory.
Onto our call of the day, from Bank of America, which talks about where the majority of investors expect the 2024 “playbook” for investing to go — and much of that has to do with a Federal Reserve backing off interest rates.
In its global fund manager survey for November, strategist Michael Hartnett and his team explain that investors have turned cautious on the macro picture.
So most expect a soft landing for the economy — interest rate hikes that have worked to slow the economy just enough, but not into a recession — lower rates, a weaker dollar and a continued bull market for large-cap tech stocks.
Read: What’s driving Wall Street’s gloomiest interest-rate forecast
A net 76% of those surveyed believe the Federal Reserve hiking cycle is over, and 61% expect lower bond yields, which as the below chart shows, is the most on record:
And that’s despite the second highest number of investors ever saying fiscal policy was too stimulative, the survey finds.
The survey also shows investors have trimmed their cash levels to a two-year low of 4.7% from 5.3%, and moved to the biggest bond overweight since March 2009. And as part of that view the Fed is done hiking, investors flipped to their first equity overweight since April 2022.
Now, if the economy goes against the general thinking here and a “hard landing” or sharp slowdown kicks in, then a contrarian investor would want to be bullish on cash, short on U.S. growth stocks and Japan equities. they say. And in the case of “no landing” and higher interest rates, then long cash, dollar and commodities is the contrarian bet to make.
Hartnett and co. also laid out what they believe is the biggest contrarian play of 2024 — “long leverage, short quality.”
While he doesn’t quite break this down, sometimes but not always, leverage can refer to companies that need to borrow money, so this would imply a bullish bet on that group. But a bullish bet on those would mean no fear of an imminent credit event, that Hartnett has discussed in recent months.
As for short quality? Those contrarian investors might bet against companies with healthy balance sheets that aren’t overborrowing or overleveraging
Read: Here are the biggest clean-energy transition challenges and investment opportunities
And: The Dow industrials hit a death cross on Monday. That could be a bullish or bearish signal
are soaring after slightly better than-expected CPI data, as bond yields
sink. Elsewhere, the dollar
dropping and gold
Consumer prices were flat in October, against expectations for a 0.1% rise, and the first month of no increase since July 2022. Annual CPI rose 3.2% , below a forecast of 3.3%. Core CPI, which strips out food and energy, also came in softer-than-expected, up 0.2% versus a forecast of 0.3% and was up 4% over the past year, the lowest rate since September 2021. That was down from 4.1%
Plus: Follow MarketWatch’s live coverage of CPI data
A bunch of Fed speakers are on the docket as well — Fed Vice Chair Philip Jefferson at 5:30 a.m. spoke about monetary policy in uncertain times, Fed Vice Chair for Supervision Michael Barr will testify to a Senate panel at 10 a.m. on supervisory and regulatory activities and Chicago Fed President Austan Goolsbee will speak at 12:45 p.m.
topped estimates for third-quarter earnings but in a cautious way, ahead of Target
results this week. One question? Is industry theft still a big problem?
Swiss-based miner and commodity trader Glencore
will pay $6.93 billion for a 77% stake in the steelmaking coal business of Canada’s Teck Resources
the former Lumber Liquidators, is fielding a $90 million takeover offer.
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