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Optimisim in the Markets

November 28, 2023

In a refreshing turn of events, the financial markets have recently experienced a significant surge, with U.S. and global equities soaring over 7% to kick off November. This substantial upswing may begin an extended run, and investors should find cause for optimism amidst positive economic news. A key factor contributing to this positive sentiment is that the Federal Reserve might conclude its campaign of raising short-term interest rates. This article delves into the promising signs stemming from the recent developments and historical data that suggest a favorable outlook for the financial markets in the coming months.
The driving force behind the recent market surge lies in the October jobs report, which signaled a cooling labor market. This, in turn, has increased the likelihood that the Federal Reserve is reaching the peak of its rate-hiking cycle. Historically, the conclusion of such cycles has been associated with positive outcomes for the stock market. In fact, looking back at the last eight instances of Fed tightening cycles dating back to 1970, the S&P 500's forward 12-month return was positive in seven of those eight periods.
An encouraging trend emerges when examining the market's performance after the Federal Reserve concludes its rate hikes. On average, the S&P 500 has gained an impressive 12.3% during the 12 months following the end of rate hikes. The data suggests that staying on the sidelines and adopting a conservative approach, such as loading up on Certificates of Deposit (CDs) or other "risk-free" instruments after rates have peaked, may not be the most advantageous strategy for investors. While uncertainties and concerns about current events persist, history indicates that stocks are poised for potential gains in the coming months.
Despite a lot of positive economic news, consumers feel unexpectedly terrible. Who can blame them? Cable news is constantly reporting on the negative. Since the pandemic began, Americans have been gloomy despite the strong economy. So much so that economists have labeled the trend a "vibecession." Our job is to help give you perspective and not get caught up in all the negativity.
In conclusion, the recent surge in the financial markets and the apparent slowdown in the Federal Reserve's rate-hiking cycle paints a positive picture for investors. Historical data provides compelling evidence that the market performs well after the Fed concludes its tightening cycles. As investors navigate the ever-changing landscape, optimism may be warranted, and the months ahead could hold promising opportunities for those with a strategic and forward-looking approach.