Who is the biggest friend of financial markets and the Santa Claus who brings gifts under the Christmas tree?
That’s right – it’s Fed Chairman Jerome Powell! This is the second time in his career that he has given investors luxurious end-of-year gifts. The first time was on the eve of 2019, when the Fed quite unexpectedly announced that there would be no more rate hikes, and the indices started moving up so fast that they were unstoppable. The second gift was given last week, when the Fed Chairman firmly stated that the fight against inflation is not over,” but the official forecast for the rate showed three possible 25-bp cuts over the next year. Hi, this is a quick review from Ivan Kompan, Edinburgh Business School analyst.
The announcement of the results of the Fed meeting was preceded by the release of inflation data in November. Everything coincided with expectations and the actual results showed another decline. Say what you will about Powell and his colleagues, but it is also possible to reduce inflation from 9.1% in June last year to 3.1% last month without “breaking anything in the economy”. And not only without “breaking” anything, but also by achieving real GDP growth of 2.6% with unemployment at 3.8%. A great result to be proud of! It seems that the “soft landing” planned by the Fed, in which many did not believe, is becoming a reality.
Investors rejoiced like little children when, on New Year’s morning, they find their coveted gifts in their socks, shoes, or under the tree. Everything grew – the Great 7 and mid-caps, small companies from the Russell 2000 took off, bonds set local records, cryptocurrencies, along with precious metals, recovered tactical losses from earlier in the week, and even the price of oil crept up. Wherever you look, there is joy, fun and prosperity for everyone, except, of course, for the bear camp, for whom this year has definitely not been a kind and friendly one, despite all the predictions made twelve months ago.
What’s next? It doesn’t look like investors are planning to rest on their laurels after five weeks of uninterrupted growth. There is money, there is a lot of enthusiasm, the prospects are bright, and greed makes you forget about any fear. All year long, investors have been living in anticipation of a “reversal”, driving prices up, and finally this long-awaited day has come. Given that current prices take into account the best possible future scenario, any unpleasant surprise during the quarterly results season can be costly for those who did not think about the possible consequences in advance.
