Our Perspective: The Recent Market Rally

As we approach the year’s final weeks, we want to share our thoughts on the current market landscape and recent positive developments.

What Has Happened?

In early November, optimism surfaced around the likelihood that central banks, including the U.S. Federal Reserve (Fed), were finally getting ready to end a historical period of interest rate increases. Globally, the central banks communicated mostly united plans to allow the data, rather than a need for intervention, to dictate the path forward. The markets responded well, and interest rates have fallen steeply from intra-year highs, with the U.S. 10-year Treasury Note yield falling from 5.0% in mid-October to 3.9% today.

Amid strong incoming data in the 4th quarter, optimism grew, and markets realized significant gains across various sectors during the first two weeks of December. For example, U.S. small-cap stocks are up over 10.7%, and U.S. investment-grade core bonds have gained 3.3% as of December 14th.

This week, the optimism culminated in increasingly dovish messages from the Fed and the U.K. and European central banks. The “foot on the pedal” approach to interest rates appears to have eased.

On December 13th, the Fed shared a notably positive “Summary of Economic Projections,” which reflects the combined thinking of Federal Reserve Board members and Federal Reserve Bank presidents. Specifically, it projected that, in the U.S., inflation will moderate even as growth and the labor market remain in good health.

Fed Chair Jerome Powell’s acknowledgment that rate cuts had been part of this recent meeting’s discussion substantially boosted both equity and bond markets. Previously, Powell had pushed back on the market’s anticipation of a lower Fed Funds rate in 2024, holding out the possibility of further increases.

We view this latest market rally as reflective of a growing widespread belief that, through the Fed’s policy decisions to combat inflationary pressures, they and other leading central banks may well have engineered a “soft-landing” that will allow the global economy to avoid a significant recession.

What is Our Perspective?

Perhaps one of the most crucial messages and investor lessons the past few weeks have reinforced is the importance of staying the course with your investment strategy. Patient investors are often rewarded for remaining invested during periods of volatility.

While these recent developments are encouraging, and we are cautiously optimistic about 2024, we acknowledge the presence of ongoing risks and uncertainties that may contribute to future volatility in our investment portfolios.

We are steadfast in our commitment to preparing our clients’ portfolios for a range of outcomes aligned with their specific financial goals and tolerance for risk. We continue to believe a disciplined, diversified, and sensible approach provides the greatest opportunity to meet this objective.


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