The S&P 500 ended the month of November up 5.6% for its second-consecutive monthly gain of at least 5%. The Dow Jones Industrial Average has now rallied 20% from its low and is only down 2.9% on the year. There is an increasing view that a new bull market has begun given that inflation is clearly rolling over. A few interesting data points will be put to the test:
- The S&P 500 recorded its 12th occurrence of at least a 10% two-month gain while also having a negative six-month return. It posted positive returns six months and 12 months forward in all previous cases.
- When a recession occurred, the market has never bottomed until after the Fed began cutting interest rates.
- The U.S. Leading Economic Index has fallen for eight-consecutive months. Each of the seven times it has fallen seven straight months, a recession occurred.
- The 2-year and 10-year Treasury yields are now inverted by 73 basis points, which is more than the level prior to the last four recessions.
Making things more difficult this time around are the continued rate hikes in the face of weak economic growth. In March, Jerome Powell said the yield curve with 100% explanatory power was the yield on the 3-month Treasury Bill in 18 months minus the current 3-month yield.
He said, “If it is inverted, it means the Fed is going to cut, which means the economy is weak.” At the time, the curve was above 2%. Now it is inverted by 40 basis points, a level associated with recession.
When asked about it recently, he blamed other factors and maintained that further interest rate increases are necessary.