Arete Market Review Q3 24

Stocks posted another good quarter with the S&P 500 up 5.89% (total return). Bonds also posted a strong total return with the TLT bond ETF up 7.93% in the quarter. It was enough to make investors feel all warm and fuzzy inside.

Clearly, the Fed was a key component to the mood music. Anticipation of a rate cut, and then final implementation of the cut, drove positive sentiment through the quarter. With that big policy threshold crossed, the question now is how does the story end?

A nice story

To be sure, the Fed has had an accommodating audience in that market participants have bought the Fed's narrative of a "soft landing" hook, line and sinker. If there is one element that stands out in regard to the investment landscape, it is the high degree of certainty with which investors believe conditions are favorable.

This high degree of certainty is reflected a number of ways. For example, The Kobeissi Letter shows "Bullish sentiment is through the roof: US equity futures positioning by investors excluding market-makers just hit a net long of ~$290 billion, the most on record.”

non dealers

The bullishness has also extended to bonds. Jim Bianco points out "In the last half-century, 'civilians' have never been this bullish on the bond market."

UMich

Of course, there are reasons for this extreme sentiment. Inflation has been quiescent as of late, earnings are growing nicely, bond volatility, in particular, has declined, and monetary policy is easing across the board. It's all very appeasing, like a good bedtime story.