To The Moon

Investors Desperately Want to See the Market Bottom Out. It’s Not Happening Yet. Markets are getting restless, they want to get to the bottom. But as long as the data point to a resilient U.S. economy that won’t happen. Services sector activity unexpectedly picked up in November, data showed Monday. With Friday’s stronger-than-expected jobs report still on investors’ minds, it was enough to spark a selloff over fears the Federal Reserve will need to be more aggressive with rate hikes. Investors are waiting for the cumulative impact of the Fed’s hiking to hit the economy and therefore to signal a pivot on the horizon. The Fed’s expected rate hike slowdown next week doesn’t appear to be under threat—traders are still pricing in a 0.5 percentage point hike at December’s Fed meeting, with a 20% chance of another supersize 0.75 percentage point increase. That’s a high probability given that Fed Chairman Jerome Powell has signaled he’s ready to slow down. The central bank will also want to avoid overtightening, especially given the lag of its hikes hitting the real economy. However, recent robust data do have implications for the Fed’s longer-term stance. Powell was keen to stress the likelihood of a higher terminal rate than previously expected last month. A resilient economy certainly points to higher rates for longer. The Reserve Bank of Australia raised rates again Tuesday and warned more hikes were to come. Governor Philip Lowe said the path to a soft landing was a narrow one. Yet Powell sees a soft landing as “very plausible” for the U.S. economy. For the foreseeable future, good news for the economy will be bad news for markets.