2023-12-16 10:13:00
U.S. stocks and U.S. bonds rose by a net US$2 trillion in three days. Was the Fed forced to shift into “crisis public relations” mode?
Financial Associated Press, December 16 (Editor Shi Zhengcheng)As the closing bell rang for U.S. stocks this week, Wall Street traders and analysts also entered the traditional “Christmas holiday time.” However, at this juncture, the Federal Reserve entered “crisis public relations” mode.
The origin of the matter was Fed Chairman Powell.
Powell misunderstood once more?
After the Federal Reserve released a more dovish interest rate decision and a “dot plot” outlook on Wednesday than expected, Powell, who has always talked nonsense over the past two years, went once morest the norm and publicly stated at a press conference:
The question of when is the appropriate time to begin to gradually reduce the current restrictive policies – this issue has begun to come into our view and has obviously become a topic of discussion outside, which is what we are discussing today.。
(Source: Federal Reserve) This statement also caused a stir in the market – who would have thought that Powell, who has only repeatedly said “inflation is too high” and “it depends on the data” in the past year or so, would not say anything at all. Talking regarding interest rate cuts in disguise? !
According to statistics, including the day Powell spoke, the total value of U.S. stocks and bonds wasA surge of US$2 trillion in just 3 days.If we count from the last Fed meeting in November, the value of U.S. stocks and bondsNet increase of $7 trillion。
This matter also has external benefits——Global stock and bond market values increased by $4 trillion this weekalso counting from the beginning of November, the net growth can reach 15 trillion US dollars.
A rally in the stock market driven by the Fed chairman’s speech should be a good thing in most cases, but this week’s situation may have gone too far:
After Powell’s speech, the market once pushed expectations for an interest rate cut in 2024 to close to 170 basis points.This is equivalent to cutting interest rates by 25 basis points every time the Fed meets starting from March next year.；
The S&P 500 Index has risen for 7 consecutive weeks, setting a new record for consecutive gains in the past 6 years (since November 2017);
After Powell’s speech,As many as 49% of S&P 500 stocks are “overbought”this is alsoFebruary 1991This is something the U.S. stock market has never seen before.
Even more amazing is that the Russell 2000 Index, which represents U.S. small-cap stocks, is alsoIn less than 50 days, it has experienced a rise from a new low in the past year to a new high in the past year.. Since the birth of this index in the 1980s, there has never been such a dramatic increase.
Against the background that the U.S. economy will gradually slow down in the next few quarters (according to the official statement of the Federal Reserve), the rise in U.S. stocks is more directed at rising valuations. The sustainability of the rise depends on whether subsequent corporate profits can keep up. But now, except for a few star stocks such as Nvidia whose products are in short supply, even Apple, the leader in the US stock market, dare not express optimism regarding next year’s performance.
More importantly, although Mingming repeatedly emphasizes that “it depends on the data,” the U.S. economic data does not provide evidence to support the Fed’s drastic change. The decline in inflation has been quite satisfactory, and the non-farm payrolls released not long ago were stronger than expected.
In this regard, the Financial Associated Press also mentioned the market’s doubts in yesterday’s report: What kind of data is Zhuan Ge looking at?Could it be Biden’s approval rating?
Given that Powell also mentioned “slowing down interest rate hikes” in July last year, which triggered a surge in the stock market, and then ended tragically with the “black eight minutes” at the Jackson Hole annual meeting at the end of August, has his meaning been confirmed by the market? The misunderstanding may have to be clarified until his next public appearance.
At least judging from the status of three officials who spoke on Friday, the Fed may not be satisfied with the market trends in recent days.
Williams, Bostic, and Goolsby shouted one following another
The first person to appear last night was New York Fed President Williams. As the “third person” in the Fed system, he threw a “straight ball” to refute Powell:
Williams said there was “not really a discussion regarding a rate cut right now,” while emphasizing that he believed “It is too early to think regarding cutting interest rates now.” If progress in inflation stalls or reverses, the Fed needs to be prepared to tighten policy further.
Later, Atlanta Fed President Bostic also used slightly tactful remarks, implying that there will only be two interest rate cuts in 2024, and the first interest rate cut will be following the third quarter.
Bostic “doesn’t feel a rate cut is imminent,” saying it will still take “several months” for policymakers to see enough data and gain confidence that inflation will continue to fall.
The most dovish of the three was Chicago Fed President Goolsby. The focus of his speech was that “no possibility can be ruled out.” He was obviously not as dovish as the market imagined.
Goolsby expects rates next year to be lower than current levels, but not significantly lower. He stressed that as inflation falls, there is a need to consider the restrictiveness of current policy and whether it should be relaxed. But “if the good news stops” and inflation fails to move toward its target, the Fed should be prepared to raise rates.
After the trio’s “combination punch”, the market has converged on pricing for an interest rate cut in March next year. International gold prices also experienced a plunge in the late trading stage. However, the fluctuations in the ten-year U.S. bond yields, which have attracted more attention, have been limited. , closing below 4% for the first time since August this year.
(International gold price trends, source: TradingView) For Wall Street, you don’t have to wait too long to figure out the attitude of Federal Reserve officials. As usual, the minutes of this week’s meeting will be released in three weeks, which is the first day of 2024. Wednesday of the week (early Thursday morning Beijing time). But until then, the market will have to spend the dozen or so trading days of the holiday season amidst all kinds of speculation.
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