So you’re saying there’s a chance? Market confidence that the Fed is all but done – bolstered by the statistical implications of a looming recession – combines with an overall decent level of economic activity and companies looking to defend their profit margins. Meanwhile, an underinvested investment community is feeling some pressure to take equity exposure in a stock market that is showing signs of a potentially significant momentum boost to the upside. The Wall Street Journal ushered in the Fed’s blackout period for public comment with an article all but sealing a quarter-point rate hike, leading to a wait-and-see stance soon after. Leading indicators of the economy were far weaker than forecast at 10 a.m. and have now turned into a loud recession alert – but the components dragging them down are survey-based (consumer and business expectations) and real estate (a well-known weakness that may be changing). already stabilized). Perhaps this, coupled with companies shedding jobs and trying to forestall demand slumps, is enough to bolster the S&P 500’s uptrend, which has put it squarely onto the longer-term bear market downtrend line that has thwarted rallies several times, even as the index in absolute terms is 2% below December highs. It remains difficult to interpret the market’s macro message given all the mean reversion action in the January effect, with discarded growth stocks finding relief and stable defensive sectors being harvested for gains after strong relative performance in 2022. But it’s clear that investors continue to price in a good chance of a less harsh economic pace for the next few months, with Q4 GDP expected to top 2% and the lagged impact of Fed tightening still unclear . Here’s Goldman Sachs’ narrative on cyclical vs. defensive stocks: The coming onslaught of earnings reports is likely to test that view further, given the subdued start to the season and a sense that companies are looking to scale back expectations as many in the Switch cost reduction mode. Bond yields continue to pull higher after a sharp rally in government bonds in recent months, which together with firmer oil and copper prices suggest the tone for global growth is seen as more stable. In addition, retail investors have been pushing money towards bonds for safe haven yields of 4-6%, a rational response if perhaps also a sign of skepticism about the potential for equities to make further advances. My weekend column explored all of this. A clear trend this year is the significant outperformance of non-US equities. Part of this is the relative lethargy of US mega-cap growth, but reopening effects, long-term mean reversion and lower valuations are also drawing money abroad. The MSCI ACWI World Index Ex-US is four percentage points ahead of the S&P 500 this month, but that comes after a long relative losing streak. Breadth is strong again, not exactly a 90% up day but still a good run for the majority of stocks. Credit is fine. VIX below 20, benign but hard to see it’s fallen too much in the 9 days leading up to the Fed decision but we’ll see.