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Broad-Based Rally Continues
Equity markets climbed for the seventh consecutive week as the Fed kept interest rates steady and signaled rate cuts ahead. Global equities (represented by the MSCI All Country World Index) were up 2.62%, and domestic stocks (represented by the S&P 500 Index) were up 2.53%.
Russell 2000 Index
Some of the less publicized areas of the market have rallied along with major stock market indexes over the last month. After heading into negative territory for the year, the Russell 2000 index (which measures small-cap stocks) is up 19.75% from the beginning of November through 12/15/23.
10-Year Treasury Yield
Additionally, expectations of rate cuts for 2024 and falling inflation sparked the 10-year treasury yield to drop below 4%. For perspective, that yield was up near 5% in October. The bond market has rallied along with equities and is up 7.86% since the beginning of November.
According to CME Group FedWatch, the market is now pricing in short-term interest rates close to 4% by the end of next year. That means about 1.25% worth of rate cuts in the next twelve months are priced into assets.
We always talk about corporate fundamentals and their importance on financial assets. While corporate earnings haven’t been overly robust this year, markets are pricing in some sizable growth for 2024. As of today, markets are pricing in a little over 10% year-over-year growth in earnings for the S&P 500 companies for 2024.
We’ll get another key inflation report this week when the U.S. Bureau of Economic Analysis releases the Personal Consumption Expenditures Price Index on Friday. This is the Fed’s primary inflation gauge and they will look for continued evidence of inflation coming down.
I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.