It’s rare to read the WSJ and NY Times and not find a single economic or financial article with Macro investment impact. This is a signal of stability with nothing obvious to disrupt the trends.
The stock market indexes continue to rise as FOMO kicks in. The trade is strongly risk-on as SPX and junk bonds are rising faster than Treasuries. The Fear & Greed Index is in Extreme Greed. USD, gold and silver are rising. Oil, natgas and copper are subsiding which may be noise.
The Cyclically Adjusted P/E Ratio (CAPE Ratio) continues to rise in bubble territory.
The Treasury yield curve has been rising since the Fed cut the fed funds rate by 0.5% as expected. The yield curve is almost flat with a slight positive slope between 5 and 20 years. The Chicago Fed’s National Financial Conditions Index (NFCI) which provides a comprehensive weekly update on U.S. financial conditions in money markets, debt and equity markets, and the traditional and “shadow” banking systems shows that broader financial conditions are loose and getting looser.
Yield spreads between BBB corporate bonds and Treasuries are declining. This is a sign of confidence in the economy since the risk of default rises in a recession.
The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2024 was 3.4 percent on October 18. This is a strong growth rate estimate which has been rising. The actual real (inflation-adjusted) GDP growth rate was a healthy 3.0% in 2Q24.
The Federal Reserve has been gradually paring back its bloated book of assets. The level is down to mid-2020 but still includes the vast pulse of Covid stimulus from early 2020. This is supporting the asset markets.
There’s no evidence of a pin which will deflate the stock market bubble at this time. But this is one of the biggest stock market bubbles in U.S. history so it’s only a matter of time.
The METAR for next week is sunny.
Wendy