The sentiment sweeping across markets is that the Federal Reserve is done raising rates and that inflation is tamed. Since Oct. 13, we have seen a surge in the stock market. The “Santa Claus rally,” indeed, is in full swing.
I think it’s a bit of what former Fed Chair Alan Greenspan might have called “irrational exuberance.” If you were paying attention in the mid-1990s, that expression should give you a chuckle.
I do think the market is a bit ahead of itself. One thing drawing buyers in is the fact that in presidential election years, markets are almost always higher on Dec. 31 than they were on Jan. 1. I think that will be the case for 2024.
However, there are plenty of nationwide elections in 2024 all over the globe, and in many cases, they will be competitive. That will create some uncertainty in the back half of the year. Even the U.S. election could cause the market to go into turmoil. Given the way that state and federal judges have been ruling on election cases since 2020, we could see some real volatility next year.
Is inflation tamed? No. Inflation has come down, but at 4 percent, it’s still not tamed. The inflation target for the Fed has traditionally been 2 percent or less, with 3 percent gross domestic product (GDP) growth. We aren’t there at all. China is for sure under pressure and slowing. That’s good for inflation, but not necessarily good for GDP growth.
The Fed is certainly on hold, but I wouldn’t bet on seeing rate declines next year. Looking at CME Fed Funds futures, the next Fed meeting in 40 days shows no change expected. There’s a higher probability of lower rates at the meeting after that, but the sentiment can change at a moment’s notice. All it will take is a big downtick in unemployment or an uptick in a price index. Right now, the price of oil is in a downward trend, which takes a lot of pressure off prices.
I do think the first quarter of next year will see the initial public offering window open. A lot of companies have been on hold since the market had such a dismal year in 2022. This year, it’s repaired itself so companies will be salivating to go public in a positive market environment.
A lot of money has been poured into artificial intelligence (AI) companies. Most of them are still nascent, and in Silicon Valley. However, I think that there will be some impactful gains in the fields of medicine and supply-chain management using AI solutions during 2024.
This past week, a company called Guac received funding. It uses artificial intelligence to predict sales of fresh food, and food with shelf life, at grocers on a store-by-store basis. This should allow grocers to streamline their inventory management practices cutting down food waste. That will send price signals to the entire market, and it will adjust, becoming more efficient. That’s great for consumers because our food costs should decrease at the margin.
“Bidenomics” has also slowed economic growth. The economic policy out of this administration has been horrible. However, it lends credence to the Warren Buffett phrase of “Never bet against America.”
Even with terrible economic policy, our free enterprise system based on capitalism finds a way to grow.
