By Lance Roberts | November 11, 2023
Inside This Week’s Bull Bear Report
- Bond Rates Drop Sharply
- How We Are Trading It
- Research Report – The Most Overlooked Economic Indicator
- Youtube – Before The Bell
- Market Statistics
- Stock Screens
- Portfolio Trades This Week
Market Review And Update
It was interesting that last week, we wrote:
“The problem with the market rallying and yields dropping is that it undoes the financial constriction they provided on the economy. Higher asset prices boost consumer confidence, and lower yields provide buying power. Both actions create the possibility of a resurgence in inflation, putting the Fed back into “hawkish” mode to ensure inflation falls.“
Mr. Powell heard our concerns, and on Thursday, he responded to the recent loosening of financial conditions.
“[The FOMC] is committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2 percent over time; we are not confident that we have achieved such a stance. We know that ongoing progress toward our 2 percent goal is not assured: Inflation has given us a few head fakes. If it becomes appropriate to tighten policy further, we will not hesitate to do so.” – Jerome Powell
As discussed below, the recent drop in bond rates and surge in the stock market works against the Fed’s goal of tightening monetary conditions. The Fed’s goal remains “tighter” conditions to reduce consumer spending and increase unemployment to reduce economic demand. The demand reduction is how inflation, which is solely a function of supply and demand, gets reduced.
The Fed faces a tricky balancing act of slowing demand without creating a recession, which, despite recent improvements in economic data, remains a risk in 2024.
However, as stated, the market pullback on Thursday was well-needed after the longest “win streak”