Recession? Soft Landing in Sight? Since the 2020 pandemic, the stock market has been on a wild ride. We've seen many leaders come and go, and it's been difficult to trust the relative strength we see. Rotation is normal as we move through various economic cycles, but trying to figure out which cycle we're actually in hasn't been easy.
Last week's Q3 GDP release was a perfect example of how confusing things can be. The first estimate of Q3 GDP was 4.9%, the highest quarterly GDP reading since late 2021. This came as a surprise to many, as there was a major fear that the US economy was heading for a hard landing due to the Fed's hawkish stance and an expected decline in consumer spending.
However, the fact that GDP accelerated instead of declining suggests that a hard landing may not be inevitable. The US consumer is also proving to be very resilient, despite the series of rate hikes from the Fed.
All of this could change the Fed's plans for rate cuts in 2024. In their latest meeting, they announced only 2 expected rate cuts in 2024, down from the previous 4. But now, with the consumer showing resiliency and GDP rising, the Fed may have less reason to cut rates.
Another positive sign is that inflation continues to drop and remains on a path headed towards the Fed's 2% target. This means that the Fed could remain on pause, with the path to a soft landing becoming clearer and clearer.
So what does all of this mean for investors? A Fed pause in hiking rates combined with falling inflation, lower U.S. Dollar and positive GDP could be a catalyst for much higher US equity prices in the weeks and months ahead. However, it's important to note that this is just speculation, and we need to see the technical conditions of our key indices change for the better.
As you can see, the S&P 500 has been in a downtrend since July 27, 2023 $459.44 was the high. However, there are some signs that the downtrend may be coming to an end. For example, the S&P 500 has been forming a higher low pattern over the past few months.
If the S&P 500 can break out above its recent highs, it would be a bullish signal and could lead to much higher prices in the weeks and months ahead. However, if the S&P 500 continues to move lower, it could be a sign that a bear market is still underway.