Stumbling at the finish, stumbling at the start some random thoughts
For investors that hoped for a Santa rally, 2024 closed with a lump of coal. Essentially, the market gains enjoyed since the November election results evaporated in the month of December. Investor’s focus on Fed policy, rising long term interest rates, and future inflation fears created insurmountable hurdles, at least in the near term, for the bull market. Having been too aggressive in lowering short-term interest rates, investors now fear a longer than expected pause in that policy, or maybe even a reversal.
It seems ironic that the “data dependent” Fed is always wrong, or at least late. But by definition, once the data is at hand, policy makers are looking backward- driving only using the rear-view mirror as it were. And as a result, it feels like a drunk going ditch to ditch off the sides of the road. But why not use artificial intelligence to sift through massive amounts of economic data and try to offer some predictive input? Sure, seems like this something that must happen at some point.
So, while the market wrestles with upcoming Fed policy, it must also discount the anticipated results of real Trump policy rather than the speculation of what he may suggest. And what to make of the disastrous fires in the Los Angeles basin. A significant short term economic dislocation, higher cost of living likely, followed by a substantial rebirth in economic activity. Any change in California politics as a result?
All of this against the possibility of a generational transformation in economies around the world owing to the AI craze. Ultimately, fundaments rather than pure sentiment will win out and to that end we look forward to the upcoming earnings season with the hope that the bull run will resume.
Bruce