Mixed signals as markets rallied with hopes for another Fed cut.
Taking a closer look…
- US stocks bounced back after falling more than 5% from their late October highs.1 It’s not just tech stocks delivering strong performance. The rally spread to other areas of the market, with consumer discretionary stocks (such as restaurants and apparel) leading the way.2 Meanwhile, international stocks kept up their momentum and have continued to outpace US stocks by more than 10% so far this year.3
- What drove this market rally? Along with strong third quarter earnings, expectations increased for another US Federal Reserve Bank (Fed) interest rate cut. The probability for a December rate cut has increased from below 30% in mid-November to over 90%.4 This rapid turnaround occurred in the wake of underwhelming economic indicators and comments by Fed officials suggesting a more open attitude toward rate cuts.5 Historically, interest rate cuts have supported economic activity and stock market returns.6
- While the market views rate cuts as positive, the reasons behind these cuts matter. By most measures, the US job market is showing signs of weakness and by lowering rates, the Fed hopes to encourage hiring. However, inflation remains elevated as prices for everyday goods and services are rising. This juxtaposition between wanting to boost the job market while also keeping inflation in check presents a challenging balancing act for the Fed, which may jeopardize future rate cuts.
- Recent market volatility serves as a critical reminder of why a disciplined investment philosophy is important. Such periods underscore the necessity of keeping a long-term perspective and a commitment to diversification.
Portfolio Manager, Strategic Advisers LLC
"Tech stocks continue to play an important role in the recent stock market rally. In the rapidly advancing field of artificial intelligence, the distinction between leaders and laggards is in constant flux. We should expect dynamic competition to produce surprising shifts in market leadership for the foreseeable future."
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For over 30 years, Strategic Advisers and its dedicated group of seasoned investment professionals have helped clients reach their financial goals. Our team of portfolio managers, with specialized areas of focus in asset allocation and specific asset classes, along with our deep quantitative and fundamental research, drive our investment selection and risk management decisions on behalf of our clients.