It is no coincidence that the yield on the 10 year US Treasury note plunged 60 basis points to its current 4.34% and the US Dollar index slumped to 103.40 as successive benign October inflation data and dovish central banker comments has led to a pivot in Wall Street interest rate expectations, with the consensus now projecting two rate cuts at the March and May 2024 FOMC conclaves. This macro shift was predictably high octane fuel for the mother of all bull runs in Wall Street risk assets, led by Big Tech shares on Nasdaq in November.
The ancient Persian proverb that “it is always darkest before dawn” was proved with a vengeance in Green November when the S&P 500 index rose 9% and the Nasdaq Comp was up a stellar 11% after a dismal performance in the 3Q whose memory will be forever tarnished by the Israel/Gaza blood letting that has horrified the world. Like Sherlock Holmes’ dog that did not bark, the stock market’s frenzied rally was amplified by the reversal of the geopolitical risk premium in crude oil prices when the Gaza war did not escalate into a full fledge IDF/Hezbollah missile duel over Lebanon let alone a military confrontation between the US and Iran that could have posed a threat to tanker traffic across energy choke points like the Straits of Hormuz.
Au contraire, Brent crude has fallen from $96 just after the October 7th Hamas terrorist assault to barely $80 now as Angola has openly threatened to violate its OPEC quota and the oil markets are skeptical that their 900,000 barrels output cut announced by the oil ministers is simply not realistic with current tanker/shipment/pipeline data. With US shale oil output now at an astonishing 13.25 MBD, Venezuela set to exponentially expand production in the Maracaibo Basin, Petrobras ramping up drilling in offshore Brazil and the Amazon Basin, Iranian output above 3.2 MBD despite US sanctions, Exxon/Pioneer and Chevron/Hess mergers a $110 billion bet on higher US shale/Gulf of Mexico output, my bearish conviction on black gold is being vindicated in the oil futures markets of Asia as I write.
The biggest risk in the US stock market this year was not being fully invested in it as my friends who took my call to buy Nvidia in January 2023 at 150 can attest. Yet the S&P 500 index is also up 19% in 2023 with the Nasdaq up 40% and Nvidia up a white hot 240%. Ooh, baby, ooh…
The cliche that if it walks like a duck and quacks like a duck does not necessarily always hold true in the financial markets but it does seem that the market performance of 2023 quacks like a secular bull market, even though its ballast was provided by the Big Tech megacap Mag Seven ex-Tesla. Jay Powell will not gut the bullish zeitgeist though he may warn against “irrational exuberance” on Wall Street to offset if it threatens the nuances or timing of monetary policy and his disinflation agenda. As a airplane passenger, I just pray for a landing, let alone a soft landing. Ditto for Mr. Market in 2024.
Also published on Medium.
