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John Williams’ grinching be damned, last week’s Fed pivot was a bona fide Christmas miracle. As mainFT’s Katie Martin wrote this weekend:
The only thing Jay Powell could have done to deliver a stronger impression of a festive giveaway to global markets this week would have been to conduct his press conference decked in an oversized red suit with fluffy white trimmings and a matching hat.
Bond yields plunged across the board, with the 10-year Treasury yield falling below 4 per cent for the first time since summer. The MSCI All-Country World Index jumped 2.6 per cent last week for its seventh consecutive week of gains — the longest streak in almost six years.
As JPMorgan’s Phoebe White wrote: “Christmas came early.” It has already forced Goldman Sachs’s David Kostin to raise his 2024 target for the S&P 500. However, if this is a proverbial Santa rally it looks more like the Billy Bob Thornton version than Edmund Gwenn.
Most of the “Magnificent Seven” that have powered much of the US stock market rally actually underperformed last week. In contrast, trashier stocks and assets ripped higher. And broadly speaking, the trashier they were the better they did.
For example, Goldman Sachs’s custom indices of unprofitable technology companies and the most heavily shorted stocks rocketed 8 per cent and 12 per cent respectively last week thanks to the Fed’s “dovish hold”.
Just to highlight two examples, Nikola and Carvana both jumped about 27 per cent last week.
(It’s hardly the meme stock short-covering saga reloaded, but it will be interesting to see the end-of-month performance of a lot of hedge funds.)
There was a similar rally in companies with weak balance sheets in the US and Europe (weak-balance sheet stocks in Asia also bounced, but only a little, which makes sense given that many of them are Chinese real estate-related stocks for whom a Fed pivot will be scant help)
SPACs also enjoyed last week, jumping 3.7 per cent top extend the gains since October to 20 per cent and once again putting them as a group within touching distance of clawing back the 2022 losses.
Throw in cryptocurrencies now having added about $500bn of “value” since October — including Nayib Bukele proudly posting screenshots of the country’s bitcoin trading statement like laser-eyed degen — and Balaji Srinivasan launching a VC fund with a -cough- interesting 2.5 & 30 fee model, and the whole thing looks very 2021.
