This is our regular weekly market update.
This past week was a doozy in the markets as the Fed started to flip the switch on monetary policy, which took the markets by surprise. Yields plunged. Stock and bond prices soared. And this time, it’s more than the Magnificent Seven stocks leading the charge.
The Russell 2000 ETF has more than doubled the return of both the S&P 500 and the Nasdaq 100 over the last month. And the S&P Regional Banking ETF, which has taken the brunt of the bears’ ire this year and is still down YTD, has surged ~36% since the beginning of November.
The markets feverish speculation about future interest rate cuts has further loosened global financial conditions, storing up risks for euphoric stock and bond markets if central banks view the easy funding environment as a reason to hold borrowing costs high.
Both Goldman Sachs and Jefferies said long/short hedge funds, which take positions betting stocks will rise and fall, got hit hard after Fed Chair Jerome Powell’s comments on Wednesday.
The investment bank’s global markets team said systematic long/short funds, based on a computer-driven strategy, were down 2.8% on Thursday, the worst single day since at least January 2016.
And in fact on Friday US equities gave back some of their weekly gains while the dollar advanced after New York Fed President John Williams told CNBC it was premature” to be thinking about a March rate cut”.
Williams’ Atlanta counterpart, Raphael Bostic told Reuters he was only pencilling in two quarter-percentage-point rate cuts in the latter half of 2024. Swaps traders were eying as many as six rate cuts for next year.
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