Fear Of The Fed Tightening On Holiday

In his Daily Market Notes report to investors, Louis Navellier wrote:

Fear Of The Fed Tightening

Stocks marched higher throughout the day yesterday, albeit on low volume. The same is happening this morning. Fear of the Fed tightening seems to be on holiday.

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Despite a seriously inverted curve, an historically reliable indicator of a pending recession, stocks are saying that earnings are not about to fall significantly. There’s no doubt that higher interest rates have made houses and cars more expensive to finance, yet prices are not materially coming down.

Consumers are running up their credit cards and the savings rate is falling fast but cash balances, overall, remain high by historical levels.

Consumer sentiment is low but rising again. We will learn a lot about consumer sentiment after Black Friday and Cyber Monday in the next few days. While economic indicators have been softening both in the US and globally, it has been less than feared given the markedly higher interest rates.

The market continues to climb the wall of worry, in this case that the Fed will feel compelled to remain aggressive longer, given the resilience of the job market, and try to push inflation down without hesitation as long as the economy continues to hum along.

Today we’re looking at lower crude prices, down 3.9% to below $78/bbl, a lower US 10yr yield, down 3bps to 3.73%, a lower US dollar index back below 106.5, and a VIX at a 2 month low of 21.3.

While earnings may still be trimmed for ’23 and the P/E is more likely to fall than rise as the Fed aggressively taps the brakes, stocks continue to be the best investment to outpace inflation, and the US remains the “safest” place to invest and will continue to receive funds flow. Investors certainly have reason to be thankful for this holiday week.

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