Mixed Signals in the Last Mile

By Aoifinn Devitt, Chief Global Market Strategist

“Yesterday is not ours to recover, but tomorrow is ours to win or lose.”

Lyndon B. Johnson

In this election year we probably also have politics, and stump speeches, on our minds, and as we embark on a new year in markets we may seek clarity on what tomorrow holds.

As in 2023 markets are awash in mixed signals, starting with this week’s inflation number of 3.1%, which came in slightly ahead of consensus (2.9%) but affirmed the direction of travel – downwards.  We are now in what pundits have termed the “last mile” of inflation’s descent towards the target 2% range, and based on looking backwards (to the “yesterday” of the quote), this is often the most dangerous time, as the last part remains sticky and can’t be eliminated through traditional means. Market reactions to the inflation numbers have been quite volatile, igniting first a sell-off in Treasuries as rate cuts now seemed further out, and then in stocks where the Dow saw its worst single day sell-off since March 2023.

This sentiment righted itself throughout the week as the figures below show and the S&P remained comfortably above the breakthrough level of 5000:

Source: Morningstar as of 2/15/2024

The breakthrough level is an important psychological milestone level for markets, and in previous breakthrough moments – such as when the DOW crossed 5000 in 1995 –  an epic bull run in that index ensued. There has been slightly less animated interest in tech stocks over the past week, but overall equity market optimism remains unabated.

Economic indicators are broadly positive in developed markets, but the finding that the UK had slipped into technical recession with its second consecutive quarter of negative growth last quarter only confirmed the malaise that many consumers there had long felt. That is another country with an election on the horizon, and recessions definitely do not make good election year fodder for an incumbent.

There have also been mixed signals in real estate – two weeks ago we discussed the fallout and reaction to the $552 million write-down linked to commercial real estate taken by New York Community Bancorp.  There were also other data points pointing to distress in the office market – news that Boston Properties had purchased a 29% stake in a midtown Manhattan office building from its co-investor for $1, and a story that a prestigious office building in Canary Wharf in London with a solid tenant had changed hands at 60% lower than its 2017 purchase price.

But then, just when a narrative was forming about valuations now having an anchor point, CBRE, the world’s largest real estate group suggested that the “worst is over for office leasing” sending its shares soaring. It cited an uptick in demand in the last six months and for higher transaction volume to follow a fall in US interest rates.

As in an election campaign there are clearly narratives and counter-narratives, punches and counter-punches, fake news, bias and a strong dose of opinion surrounding the facts and data of markets today. Investors might be well advised to brace for the cacophony to get louder in the months ahead. Here at Moneta, we will continue to parse the lines of argument, highlight the contradictions and seek fact-based and data-driven insights.


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