After weathering market lows in October, investors may have at least one reason to be grateful this holiday season as the potential conclusion of the Federal Reserve’s aggressive rate hike campaign ushered in a strong rally throughout November. CNBC’s Closing Bell interviewed Peter Cecchini, director of research at Axonic Capital, LIVE on Wednesday, November 29, to shed light on the intricacies of the recent market surge and what the new year may hold for investors.
“What happens oftentimes is that, when stocks rally, that feeds on justifications for that rally or people create narratives to fit the rally. I really think that’s what happened here,” Cecchini tells host Mike Santoli. “I don’t think much has changed. I think the long invariable lags of monetary policy are going to kick in. It’s certainly taken longer than I thought they would, but I don’t think the narrative has changed for next year at all.”
Additionally, many investors posit that the end-of-year rally has been further propelled by expectations that the Fed could successfully achieve a soft landing. Contrary to this narrative, Cecchini holds a different perspective. “Those cuts are coming from expectations of a slowdown, not a soft landing,” he argues. “The Fed history tells us that the Fed has rarely, if ever, orchestrated a soft landing. I’m just not certain what’s changed this time.”
Even as the possibility of a recession remains on the table, it appears that the equity markets are turning a blind eye to any potential downturn. However, the same cannot be said for other markets. “When we look at certain structured credit markets we happen to traffic, we think a slowdown is getting priced in and see pretty good risk-adjusted returns there,” says Cecchini. Meanwhile, when we look at relative value, from bonds to equities, for example, we just don’t see it.”
Overall, while the equity markets may be rallying into the end of the year, 2024 may not experience economic waters as calm as expected. If you have any questions about what you can do to prepare your portfolio, please do not hesitate to contact us.