Several months have passed since my last post on 4 August with the following note:
"Expect a slight economic ease and, as a result, a correction in the financial markets. Looking at both the SP500 and FAANG charts separately, it also looks like a correction is expected from a technical point of view."
Look what happened ever since:
The market made some waves, but experienced a correction after all (I do hope you managed to profit from this correction, though).
Then, within just three weeks the market has grown by 10% making rapid movements. Look at the blue arrow on the chart - that's where we were when I talked about "expecting a slight economic ease".
What made the market react so positively?
Did the manufacturers manage to show better results than expected? After all, in the previous two months, the trend already started to show some improvements – the indicators were not brilliant, but still better than estimated.
And most of all, we were witnessing a gradual approach towards the magical “50” mark this month. The trend was good: 46 points in July; August – 46.4; September – 47.6; in October – 49... It's time to get excited since the trend is good. Right?
But then comes the November report: 46.7.
Bloody hell... Besides, the comments from the manufacturers don't sound super optimistic either:
Maybe the service sector is the one that carries shaky economy on its shoulders? - not really.
There is a similar notion. November report shows worse results than predicted. Although it must be said right away - the service sector overall is doing much better than manufacturers.
This can also be clearly read in the respondent's answers:
Maybe the consumers are the ones who drive the market and still stay positive?
Consumer sentiment, as we see, has improved, but it is far from the usual levels.
The market predicts a slowdown and stabilization of inflation. And the last published inflation indicators also confirm this notion.
Why is it so important?
Because it means that interest rates will not be raised any more. This is very, very important. High interest rates have affected everyone who has any kind or type of credit. As well as those who plan to borrow money or taking a lease. The main problem for them is that the money has become really "expensive". Of course, the "expensive money" is a relative term. But since the market was used to low rates for a long time, the current price increase is very significant.
The interest rates have been low for 15 years and the current levels were during so-called the "big crash" of 2008. However, if we zoom out even further - the existing rates are nothing that dramatic, though.
The drop in inflation is also confirmed by the drop of oil prices. The oil prices have fallen by 20% in recent months. And as we know - the commodities is one of the biggest factors influencing the inflation, and especially the oil!
Summing up: I don't think that another increase of interest rates is expected. Additionally: if we look at the historical graph of interest rates, we see that when the rates stop going up - they don't tend to stay high for long. There is usually a short period of time followed by a cycle in which rates are reduced.
The graph depicts the market forecast for interest rates in March 2024.
With 35% probability that the rates will be reduced by March 2024. Of course, this is not the highest probability, but still, the chance is there and I am ready to take it.
And the market, taking into consideration everything that has been mentioned above, starts to appreciate these "better times" 😉