Closing Thoughts for the Week

A rate cut at the Fed meeting in less than two weeks is looking more and more like a done deal. The market is still pricing in 2-3 cuts next year and even that might be optimistic. The drop in the 10-year Treasury yield suggests that inflation bets might be easing and investors might be growing a bit more concerned about economic conditions.

To this point, the markets have performed about how you might expect post-election. There’s one big difference this time around though - that stubborn issue of utilities and gold also outperforming large-caps. We didn’t see anything remotely resembling that in 2016. Unfortunately, the December surprise appears to be coming closer to fruition.

Global inflation might be the biggest theme of the week. If the BoJ reacts to this inflation reading and hikes unexpectedly in December, this could be the December surprise that triggers another reverse yen carry trade and potentially sinks equity prices. Even though the major averages were up this past week, there’s still a risk-off pulse in U.S. equities.