'We see a year-end rally coming into play, and if the Fed cuts rates next year, equity markets will do ok,' said Colin Graham, head of multi-asset strategies at Robeco.
But if the underlying fundamentals don't match up, it won't last.
3, one of the biggest declines in 20 years.ĭallas Fed President Lorie Logan on Tuesday fired what could be seen as a warning shot, saying the recent loosening meant the Fed's fight against inflation may not yet be won.įor markets, there may be enough in the tank to keep the rally going for the rest of this year on overshooting momentum. The sharp reversal now underway will be concerning - Goldman Sachs's financial conditions index fell 50 bps in the week of Oct. Last month, with yields on their way to 16-year highs and Wall Street entering correction territory, nearly every Fed official specifically mentioned or alluded to tighter financial conditions cooling the economy rather than further rate hikes. All in all, that might be a fairly optimistic picture, which is why the ebb and flow of financial conditions will be watched so closely.
