Lining Up The Doves

“After each storm, we become stronger, more solid, and soon we’re no longer fearful of storms. We no longer pray for a calm sky and a calm ocean. Instead, we pray that we have the wisdom and strength to deal with the difficulties that arise in life.”

Thich Nhat Hanh Happiness

The View From 30,000 Feet

The doves lined up last week guiding the S&P500 up 5.85%, marking the best week of performance for the year. A busy week of data began with the quarterly refunding announcement from the Treasury. After being shell shocked by the magnitude of the July announcement, nervous investors instead had a chance to take a deep breath when the announcement came in slightly lighter than market expectations. The good news continued with positive surprises on Productivity and Unit Labor Costs, a new and improved Powell, who was beaming with confidence, weaving a story of falling inflation matched with cooling employment, and subtly backing away from intentions to hike further.

Towards the end of the week claims data reenforced a picture of a more difficult labor market, which was followed by a payroll reports that was in two words – not good. For the markets bad news was good news, and by the end of the week equities were higher, Fed Funds Futures had moved from pricing in three cuts next year to four, Treasury yields began to plumet and financial conditions had loosened significantly with equities continuing to do what they’ve done since July – follow the Treasury market around like a starstruck lover. Not even lackluster comments from Apple were enough to dissuade buyers. Now the big question is – will the rally stick and gel into the consensus Q4 boom expected, or will it fade as bad news actually becomes bad news?

  • Powell transitions from careful to confident, with the first subtle hints of taking a victory lap
  • Employment data begins to show signs of deterioration, now the worry become non-linearity
  • The first hints of Q4 earnings and data indicate expectations for growth should be tempered
  • The most Frequently Asked Question from clients this week: Is the market rally sustainable?