Markets have seen some relief in a year that overall is likely to be remembered as among the most challenging for investors. But the negative trend reverted somewhat with gains for the S&P 500 and select Treasury Indices.
This recent market move has been supported by an alignment of stars on various fronts: (1) US inflation on a downward path, wherein we believe the market rally and the exuberance is excessive, as the Fed will remain focused on the inflation target and it is too early to claim victory there; (2) the earnings season was bad but not as bad as feared; (3) China’s Covid policy relaxation, which has happened earlier than expected, but full reopening will be in 2024; and (4) geopolitical uncertainty, with regard to which there has been some pause after elections – in the US, the mid-terms saw no major surprises and were quickly digested by the market, which reacted well to a divided government that should deter populist policies. Internationally, we can expect more on the US/China tensions front. In the UK, the new PM is changing the fiscal policy stance, with the focus now on tax increases and spending cuts.
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