The upcoming CPI data is predicted to keep the Federal Reserve from making any interest rate hikes. If everything goes according to expectations, bond yields will continue to decrease, fueling the end-of-year equity rally theory.
Bank of America’s latest forecast suggests that most investors anticipate the 2024 investment playbook to revolve around a Federal Reserve that is hesitant to increase interest rates. In their recent global fund manager survey, Michael Hartnett and his team reveal that investors are becoming cautious about the macroeconomic outlook. They anticipate a soft economic landing with moderate interest rate hikes that slow down the economy but do not lead to a recession, along with lower rates, a weaker dollar, and sustained growth in large-cap tech stocks.
The survey shows that a significant number of investors believe the Federal Reserve’s hiking cycle is finished, and a majority expect lower bond yields. Even though fiscal policy is viewed as excessively stimulating, investors have reduced their cash levels to a two-year low, with the biggest bond overweight since March 2009. Additionally, they have moved to the first equity overweight since April 2022.
Hartnett and his team also identify the biggest contrarian play of 2024 as “long leverage, short quality.” This suggests a bullish bet on companies that need to borrow money and a bearish stance on companies with healthy balance sheets that are not over-leveraging.
The markets are currently flat ahead of the release of the CPI data, with bond yields showing minimal movement. Analysts are expecting the CPI data for October to show a slight increase of 0.1% for the month and 3.3% annually, while the core CPI is predicted to hold steady at 0.3% and 4.1%, respectively.
In addition to the CPI data, several Federal Reserve speakers are scheduled to make appearances throughout the day. Home Depot announced third-quarter earnings ahead of Target, TJX, and Walmart. Meanwhile, Glencore will pay $6.93 billion for a stake in the steelmaking coal business of Teck Resources.
For more details on the topics covered, visit the respective links:
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The top-searched stock-market tickers on MarketWatch as of 6 a.m. are also available for review. Finally, some interesting, random reads are provided, including a surprising study on ultra-processed foods and the popularity of Taylor Swift Christmas baubles.
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