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The AM Call: Dovish Fed Delivers Santa Claus Rally

  • Markets rose last week with the Fed delivering a dovish surprise which drove markets higher. As expected the Fed held rates steady. However, the summary of economic projections (SEP) showed the Fed funds rate declining to 4.6% by YE24, compared to 5.1% in the September projections, implying the Fed is increasingly confident that inflation is on a path back to 2%.
  • Markets took off on the Fed’s benign outlook, with Treasury yields declining and equities rallying. The 10Y Treasury is now back below 4%, after briefly touching 5% in October. The policy-sensitive 2Y fell by a stunning -30 bps in one day. Lower rates drove equities higher, with broad participation for an undeniable Santa Claus rally.
  • On Friday, markets gave back some of the gains following comments from New York Fed Chair Williams that rate cuts were not imminent. Overall, we think the Fed is done here. We also agree that markets appear to be pricing in aggressive rate cuts that may not materialize as quickly or as deeply as currently expected.
  • Other macro data last week came in largely as expected. November headline and core CPI was up 0.1% and 0.3% MoM respectively. On a YoY basis headline and core CPI rose by 3.1% and 4.0%, respectively, both in-line with expectations. PPI data was similarly benign, with PPI final demand up 0.0% MoM and 0.9% YoY. PPI is closely watched as a leading indicator for CPI trends.
  • Retail sales were higher than expected, up 0.3% in November, vs. estimate for down -0.1%. Excluding the volatile auto and gas categories, advance retail sales were up 0.6%, vs. forecast of up 0.2%.
  • All three major equity indexes closed at 52-week Highs. Small caps and mid-caps significantly outperformed large caps, while market breath continue to improve as the “Magnificent Seven” lagged behind gaining only a combined +0.52% versus nearly +3% for the Nasdaq index. In Corporate News, Ford (F) announced significant production cuts next year for its F-150 Lightning EV line due to weakening demand, while Intel (INTC) unveiled new PC and Data Center processing chips with focus on AI performance as it attempts to capture a piece of the booming market. Also, Pfizer (PFE) shares sunk after providing a weaker than expected 2024 sales forecast as $6 bn guidance in Covid vaccine sales was well below the $14 bn expected by analysts. Berkshire Hathaway (BRK/B) added another $588 mn to its Occidental Petroleum (OXY) stake to now total 27% ownership. In M&A news, U.S. Steel agreed to be acquired by Nippon Steel for $55 per share, Choice Hotels (CHH) launched a public hostile bid for rival Wyndham (WH), and press reports indicated that DocuSign (DOCU) has hired advisors and has made itself available for sale to potential suitors.

The Week Ahead

  • The AM Call will be back after the new year to wrap up 2023. Have a great holiday season!  

Market Summary – Returns and Yields

Definitions, sources, and disclaimers


  • Gross Domestic Product (GDP): A comprehensive measure of U.S. economic activity. GDP is the value of the goods and services produced in the United States. The growth rate of GDP is the most popular indicator of the nation’s overall economic health. Source: Bureau of Economic Analysis (BEA).
  • GDPNow is not an official forecast of the Atlanta Fed. Rather, it is best viewed as a running estimate of real GDP growth based on available economic data for the current measured quarter. There are no subjective adjustments made to GDPNow—the estimate is based solely on the mathematical results of the model. In particular, it does not capture the impact of COVID-19 and social mobility beyond their impact on GDP source data and relevant economic reports that have already been released. It does not anticipate their impact on forthcoming economic reports beyond the standard internal dynamics of the model.
  • The Current Employment Statistics (CES) program produces detailed industry estimates of nonfarm employmenthours, and earnings of workers on payrolls. CES National Estimates produces data for the nation, and CES State and Metro Area produces estimates for all 50 States, the District of Columbia, Puerto Rico, the Virgin Islands, and about 450 metropolitan areas and divisions. Each month, CES surveys approximately 142,000 businesses and government agencies, representing approximately 689,000 individual worksites. Source: Bureau of Labor Statistics (BLS).
  • Initial Claims: An initial claim is a claim filed by an unemployed individual after a separation from an employer. The claimant requests a determination of basic eligibility for the UI program. When an initial claim is filed with a state, certain programmatic activities take place and these result in activity counts including the count of initial claims. The count of U.S. initial claims for unemployment insurance is a leading economic indicator because it is an indication of emerging labor market conditions in the country. However, these are weekly administrative data which are difficult to seasonally adjust, making the series subject to some volatility. Source: US Department of Labor (DOL).
  • The Consumer Price Index (CPI): Is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available. Source: Bureau of Labor Statistics (BLS).
  • The national unemployment rate: Perhaps the most widely known labor market indicator, this statistic reflects the number of unemployed people as a percentage of the labor force. Source: Bureau of Labor Statistics (BLS).
  • The number of people in the labor force. This measure is the sum of the employed and the unemployed. In other words, the labor force level is the number of people who are either working or actively seeking work.Source: Bureau of Labor Statistics (BLS).
  • Advance Monthly Sales for Retail and Food Services: Estimated monthly sales for retail and food services, adjusted and unadjusted for seasonal variations. Source: United States Census Bureau.
  • Federal Open Market Committee (FOMC): Responsible for implementing Open market Operations (OMOs)–the purchase and sale of securities in the open market by a central bank—which are a key tool used by the US Federal Reserve in the implementation of monetary policy. Source: Federal Reserve.
  • The Federal Funds Rate: Is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight. When a depository institution has surplus balances in its reserve account, it lends to other banks in need of larger balances. In simpler terms, a bank with excess cash, which is often referred to as liquidity, will lend to another bank that needs to quickly raise liquidity. Source: Federal Reserve Bank of St. Louis.
  • The “core” PCE price index: Is defined as personal consumption expenditures (PCE) prices excluding food and energy prices. The core PCE price index measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices to reveal underlying inflation trends. Source: Bureau of Economic Analysis (BEA).

Sources: U.S. Bureau of Economic Analysis (BEA), Bureau of Labor Statistics (BLS), U.S. Department of Labor (DOL), Federal Reserve, Federal Reserve Economic Database (FRED), Federal Reserve Bank of Atlanta, U.S. Census Bureau, Department of Housing and Human Development (HUD), U.S. Department of Agriculture, U.S. Energy Information Administration (EIA), U..S Department of the Treasury, Office of the United States Trade Representative (USTR), U.S. Department of Commerce, data.gov, investor.gov, usa.gov, congress.gov, whitehouse.gov, U.S. Securities and Exchange Commission (SEC), Morningstar, The International Monetary Funds (IMF), The World Bank (WB), European Central bank (ECB), Bank of Japan (BOJ), European Parliament, Eurostats, Organization for Economic Co-operation and Development (OECD), National Bureau of Statistics of the People’s Republic of China, Organization of the Petroleum Exporting Countries (OPEC), World health organization (WHO).

Financial Markets – Recent Prices and Yields, and Weekly, Monthly, and YTD (Table): Bloomberg, Weekly Market Data is in USD and refers to the following indices: Macro & Market Indicators: Volatility (VIX); Oil (WTI); Dollar Index (DXA); Inflation (CPI YoY); Fixed Income: All U.S. Bonds (Bloomberg Aggregate Index); Investment Grade Corporates (Bloomberg US Corporate Index); US High Yield (Bloomberg High Yield Index), Treasuries (ICE BofA Treasury Indices); Equities: U.S. Industrials (Dow Jones Industrial Average); U.S. Large Caps (S&P 500); U.S Tech Equities (Nasdaq Composite); European (MSCI Euope), Asia Pacific (MSCI AP), and Latin America Equities (MSCI LA); Sectors (S&P 500 GICS Sectors) Source: Bloomberg. Fed Funds Rate probabilities, Source: CME FedWatch Tool.  

Important Disclosures:

The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from Amerant Investments, Inc. or any of its affiliates to participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

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