(17 December 2023) US stocks rallied again last week as the Fed Chair Jerome Powell delivered a long-awaited pivot towards cutting interest rates. The S&P 500 gained more than 2% on the week to 4719 while the Nasdaq-100 added 3% to 16,623. This bullish outcome was unexpected as I thought we might have seen more weakness around the Fed decision and the Mercury retrograde. While I noted this Mercury retrograde station didn’t look particularly bearish, I nonetheless failed to forecast the rally.
With investors cheering the prospect for rate cuts in 2024, it would seem that bull market is here to stay for a while. That may be so, but there are some reasons to take a more skeptical view. First, it isn’t even clear if the Fed has pivoted. Friday’s comments by Fed members Williams and Bostic tempered Powell’s dovish testimony as they suggested the Fed is not thinking about cutting anytime soon. Indeed, John Williams suggested that further hikes were still possible if conditions warranted. Certainly, continued strength in the labor market along the lines of the December NFP report would force the Fed to keep rates where they are. But the larger question is whether rate cuts are actually bullish at all. Typically, the Fed only cuts rates in reaction to weakening economic indicators, as happened in 2008 and 2020. In contrast, an expanding economy is characterized by high interest rates as inflation pressures must be contained. Therefore, the willingness of the Fed to cut may be seen as a reaction to the recent moves in the bond market. The 2-year yield has been falling since October and now sits at 4.44% — well below the current Fed funds rate of 5.37%. The bond market is signaling that despite a robust labor market, there are other signs of weakness in the economy that suggest a further slowing is likely in 2024. But for the time being, markets are rallying on the prospect of cheaper credit, without necessarily focusing on the underlying reasons why yields may be falling.
The planetary outlook continues to have some noteworthy downside risk over the medium term. In the near term, however, the outlook is more mixed. Bullish Jupiter remains strong as it continues to align with Neptune and Chiron by angular separation (=21 degrees). While I thought we might have seen some weakening of this bullish energy last week as it moved a bit past exact, obviously it is still close enough to keep sentiment positive. One possible explanation is that Jupiter is moving very slowly ahead of its direct station on Dec 30. This means that although it is past exact, it is still close enough to exert a positive influence. On the negative side of the ledger, the influence of Saturn will start of increase in the second half of December and continue into January. First, Saturn will form an angular separation with Pluto, Uranus and Chiron (=34 degrees) over the next 3-4 weeks. Although bearish, this should be seen as a background influence without a precise manifestation date…
