That is The Takeaway from today’s Morning Temporary, which you possibly can enroll to receive in your inbox every morning together with:
The bullish euphoria that got here from the potential of a fast return to neutral rates after the Fed’s 50 basis point cut in September has faded. However it’s been swapped with a special bullish sentiment, one everyone knows thoroughly: the strength of a hot economy, which has helped power the market all 12 months — until that cut.
While inflation and economic reacceleration concerns have returned after a string of hot data (the September jobs report, the Consumer Price Index, hot retail sales, and calmer weekly jobless claims), the strength has done nothing if not buoy the market. It has done just high-quality (thanks very much) under the past few years of high rates of interest and infinite no-landing comments. A hot economy is nice for stocks.
All this has kept the S&P 500 floating around its all-time high all week, now well over 5,800, because the index passes an increasing number of year-end forecasts — and their subsequent upward revisions, like UBS’s 5,850 figure that it published Tuesday.
The mood feels different than a month ago. But as our Chart of the Week shows, not an entire lot has actually modified when it comes to expectations — especially to the downside.
The newest Bank of America Global Fund Manager Survey shows the soft landing potential can have barely decreased. However the hard landing respondents faded just as much, falling into the one digits for the primary time since June, with just 8% seeing a recession in the following 12 months.
Checking in with the CME’s FedWatch tool also shows little change. The assumption that the Fed will proceed to chop rates of interest in November remains to be overwhelming, with the tool showing a 91% likelihood of a 25 basis point cut on Friday.
Reconciling these two things — one other potentially reaccelerating economy and a rate cut the market is sort of certain of — sounds tough. However it’s not if you remember how high rates still are, as we wrote earlier this week in Chart of the Day. As Minneapolis Fed president Neel Kashkari said this week, rates are still “overall restrictive.”
Jason Furman, the previous Council of Economic Advisers Chairman under President Barack Obama, told Yahoo Finance that he sees inflation as a much bigger problem than recession at once. But the present Harvard professor mused that while “the Fed must have tight policy, it just doesn’t must have policy being as tight because it was last 12 months.”
High — but lower than they were — for longer.
Ethan Wolff-Mann is a Senior Editor at Yahoo Finance, running newsletters. Follow him on X @ewolffmann.
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