{"id":12859,"date":"2023-12-04T17:32:21","date_gmt":"2023-12-04T17:32:21","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=12859"},"modified":"2024-01-10T17:19:53","modified_gmt":"2024-01-10T17:19:53","slug":"is-market-getting-enough-certainty-to-rally","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/is-market-getting-enough-certainty-to-rally\/","title":{"rendered":"Is Market Getting Enough ‘Certainty’ To Rally?"},"content":{"rendered":"\n

Is the Market Finally Getting The \u201cCertainty\u201d Needed for a Sustained Rally?<\/strong><\/p>\n\n\n\n

Markets don\u2019t like uncertainty. And in the late summer and early fall, uncertainty is what the markets got.<\/p>\n\n\n\n

In early August, the company Fitch Ratings lowered its rating on the U.S. to AA+, one notch down from the top AAA grade. The downgrade came nearly two months after a debt ceiling deal was struck \u2013 with worries about debt default gone \u2013 but the headline risk was enough to unsettle markets.1<\/sup><\/p>\n\n\n\n

Later in the month, news kept emerging from China that the world\u2019s second-largest economy was in trouble, with a beleaguered property market, weak exports, and sagging consumer spending. Meanwhile, the global price of a barrel of crude oil kept climbing from July, rising over 20% in just a few weeks (likely because of weak China demand coupled with Saudi and Russian production cuts). Interest rates also made a significant move higher, with the 10-year U.S. Treasury bond climbing from 3.86% at the beginning of July to 4.88% by the end of October. Stocks sank as rates rose.<\/p>\n\n\n\n

To top it all off, on October 7th, Hamas attacked Israel setting off a second war in addition to the Russia \u2013 Ukraine conflict. Markets were jittery as everyone wondered if the war would escalate into a regional conflict, involving other countries.<\/p>\n\n\n\n

Feeling Uncertain? Don\u2019t Miss Our Latest Stock Market Outlook Report!<\/a><\/strong><\/span><\/p>\n\n\n\n

Trying to time the market, is never the ideal option. Instead, I recommend staying focused on key economic indicators to protect your investments from market uncertainties, such as inflation and high-interest rates.<\/p>\n\n\n\n

To help you do this, we are offering all readers a look into our just-released December Stock Market Outlook Report<\/a><\/span><\/strong>. This report will help investors prepare for market downturns and provide insight, such as:<\/p>\n\n\n\n

\u2022 Top-down S&P 500 year-end 2023 target
\u2022 Setting return expectations for 2023
\u2022 International update on key global regions
\u2022 And more\u2026<\/p>\n\n\n\n

If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!<\/p>\n\n\n\n

Download the December 2023 Stock Market Outlook Report2<\/sup><\/a><\/span><\/strong><\/p>\n\n\n\n

Uncertainty prevailed.<\/p>\n\n\n\n

Looking ahead to the last few weeks of the year, however, I think markets are starting to see a clearer path forward, particularly in three areas that matter most: inflation, interest rates, and earnings. Below, I walk through each.<\/p>\n\n\n\n

1. Inflation and the Central Banks<\/strong><\/p>\n\n\n\n

If we\u2019re reading between the lines, virtually every developed world central bank has indicated that they are done raising rates in this cycle. I say \u201creading between the lines\u201d because no central bank has declared they\u2019re done \u2013 it\u2019s more about posturing\/positioning while also keeping in mind economic data across each country.<\/p>\n\n\n\n

At their most recent meetings, the Federal Reserve, the European Central Bank, and the Bank of England all left rates unchanged. In the U.S., with long rates pressured higher and the Fed no longer convinced that higher unemployment and weak economic growth are needed to pull inflation lower, all signs point to a long pause \u2013 perhaps followed by cuts sometime in 2024.<\/p>\n\n\n\n

Inflation pressures continue to ease globally, and the likelihood of slower growth (see next point) should temper consumer spending (demand) enough to force corporations and small businesses to pull back on raising prices.<\/p>\n\n\n\n

Why this all matters: when the Fed has finished hiking rates historically, stocks have performed well with the interest rate \u2018certainty\u2019 that comes with it. In the previous seven Fed hiking cycles, stocks and investment-grade bonds outperformed cash by 19% and 14%, respectively, over the following two years.<\/p>\n\n\n\n

2. Slowing Growth and Interest Rates<\/strong><\/p>\n\n\n\n

Recent economic data in manufacturing, services, and even the labor markets have pointed to fading economic growth momentum \u2013 which investors should view as a positive. But the U.S. economy is also giving another signal of a potential \u2018soft landing\u2019 via gains in productivity.<\/p>\n\n\n\n

The latest productivity print \u2013 which measures how much workers produce per hour \u2013 showed the biggest gain in three years. Unit labor costs also fell, which reduces a company\u2019s need to pass along rising costs through higher prices. This data suggests the businesses may be landing in some form of equilibrium \u2013 not too hot, not too cold \u2013 where growth moderates but can be maintained. As interest rates tend to respond to changes in growth rates and growth expectations, this data suggests upward pressure on rates could too be fading.<\/p>\n\n\n\n

Bond markets received some other good news in November as well, when the U.S. Treasury said it plans to borrow less in Q4 than previously anticipated, while also indicating its intent to issue fewer longer-dated bonds. These developments arguably ease market worries about too much supply of new bonds, and provide additional \u2018certainty\u2019 on rates looking ahead.<\/p>\n\n\n\n

3. Earnings Turning a Corner<\/strong><\/p>\n\n\n\n

With Q3 2023 earnings season behind us, we can say the overall earnings picture remains stable and largely positive. Earnings growth for the S&P 500 index, which was negative for each of the preceding three quarters, turned positive in Q3, even with a continued Energy drag. The earnings growth pace is expected to steadily improve in the coming periods \u2013 uncertainty turned to certainty.3<\/sup><\/p>\n\n\n\n

One factor to flag is that earnings estimates for Q4 have been coming down, as seen in the chart below. I would reframe this as a positive, however, as it makes exceeding earnings expectations in the final quarter of the year easier.<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Bottom Line for Investors<\/strong><\/p>\n\n\n\n

With major central banks posturing to stop rate hikes, inflation still in a downtrend, upward pressure on interest rates easing as the economic growth shifts lower, and earnings growth turning a corner, I would argue that the market is seeing some \u2018uncertainty relief\u2019 as compared to summer and early fall. The geopolitical situation is still unsettling, but markets have already priced in the economic impact of both wars, in my view.<\/p>\n\n\n\n

Looking ahead, if the U.S. economy experiences slower growth in Q4 while inflation ticks lower and the Fed stays on hold, I think markets will start looking much further ahead to an ongoing earnings recovery and the possibility of a rate cut on the horizon.<\/p>\n\n\n\n

To get more market insights, take a look at our December Stock Market Outlook Report4<\/sup><\/a><\/span><\/strong>. In this report, you\u2019ll discover Zacks\u2019s view on:<\/p>\n\n\n\n

\u2022 Top-down S&P500 year-end 2023 target
\u2022 Setting return expectations for 2023
\u2022 What produces 2024 optimism
\u2022 What\u2019s alive for 2024 pessimists
\u2022 International update on key global regions
\u2022 And more\u2026<\/p>\n\n\n\n

Prepare your portfolio for what lies ahead by reading this new report today.<\/p>\n\n\n\n

FREE Download \u2013 Zacks’ December 2023 Stock Market Outlook Report4<\/sup><\/a><\/span><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Markets don’t like uncertainty\u2014and there’s been a lot of it in 2023. Mitch looks at whether things have settled down enough to spark a sustained rally. <\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-12859","post","type-post","status-publish","format-standard","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12859","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=12859"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12859\/revisions"}],"predecessor-version":[{"id":12862,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12859\/revisions\/12862"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=12859"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=12859"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=12859"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}