US markets surge in November on soft landing hopes; Fed's shifting narratives raise caution

livemint.com:

Also Read: US stock market ends higher as Powell raises peak rate hopes; S&P logs highest close of year Could this time be different? Perhaps. While Fed Chair Jerome Powell pushed back Friday on the prospects for interest-rate cuts, the central bank’s historic tightening campaign is seen as game over across markets. At the same time, the risk-on exuberance is working against Powell’s goal of tightening financial conditions, a back-and-forth dynamic that has contributed to the demise of past rallies.

“The shifting narratives have been swinging markets far more than is warranted by fundamentals — in both directions," Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors, said. “It’s a constant shifting back and forth between oversold and overbought conditions." As always, extreme moves in markets are eliciting warnings about their sustainability. Hedge fund manager Bill Ackman said in an episode of The David Rubenstein Show: Peer-to-Peer Conversations that economic optimism may be misplaced — unless the Fed starts easing a lot sooner than many investors expect.

He cited the impact of so-called real rates, noting that as inflation recedes they effectively rise and threaten the business cycle. (Exciting news! Mint is now on WhatsApp Channels Subscribe today by clicking the link and stay updated with the latest financial insights! Click here!) “I think there’s a real risk of a hard landing if the Fed doesn’t start cutting rates pretty soon," said Ackman, noting that he’s seen evidence of a weakening economy. By almost any measure, November’s advance was a huge one.