Long-term interest rates have fallen sharply after peaking at the beginning of October, and the market now expects that the US central bank may soon begin cutting interest rates. This has increased investors’ appetite for stocks – and the S&P 500 has risen a whopping 8.4 percent in the past month.
However, Chief Economist Kjersti Hoogland at DNB Markets is cautious about the ‘buy’ scenario that is being priced into the market at the moment.
– Interest rate expectations have fallen largely on the back of the narrative that we will see a very smooth landing, without major hits to the economy. But there is still plenty of room here, on one side and on the other, she says and continues:
-We believe that the matter has gone a little too far and that the Fed will postpone interest rate cuts until the summer.
Next week, several important macro indicators will be released – which could once again shake interest rate expectations.
Signs of recession approaching
The most important this week is the Non-Farm Payrolls, which are the US labor market statistics for November, which will be published on Friday. These numbers are so important that they are often referred to as the “Most Important Numbers of the Month.”
Macroeconomists expect that 180,000 jobs will be created in the United States in November, compared to 150,000 jobs in October. DNB Markets also expects employment growth to end at just under 200,000 new jobs, while unemployment will rise by a tenth.
If that happens, unemployment rates will rise by four-tenths from the bottom.
The Federal Reserve’s economist, Claudia Sahm, had previously launched a recession label that reads as follows: If unemployment increases by five-tenths from the bottom within 12 months, the economy will be in – or on its way to – a recession.
– If we do it right, we will start to get close to this level. But neither we nor Sahm himself believe that this is a fixed rule. At DNB, we believe the U.S. economy will moderate this winter, but not in a recession-like way, says Hoagland.
– Build drop height
However, Hoagland points out that Friday’s numbers could have an impact on the development of interest rates and the speed of the stock market.
Powell himself pointed out the need to keep interest rates higher for a longer period. The chief economist says higher employment numbers will strengthen this line, and thus lead to higher interest rates.
– When interest rates fall this low, the odds of a recovery increase.
On the other hand, fewer new jobs may also have a negative impact.
– I concluded that weak labor market numbers would not be good news for the stock market either, as long as they testify to weak demand.
– After all, the stock market has risen sharply due to low interest rates. Is there good evidence for this optimism?
-High Decline is built on the scenario of keeping demand high, while inflation falls, without suffering a recession and at the same time interest rates can be lowered. Clearly something could go wrong there.
In addition to the labor market figures, the ISM index for the US service sector will also be released next week, as well as the JOLTS report – which also talks about the flow in the US labor market.
– ISM numbers are important, because the services sector makes up a large part of the American economy. If this turns out to be weak, Hoagland says, it will boost expectations for early interest rate cuts.
Expect normal returns
Investment Director Leif-Rune Rein at Nordea Liv also believes that the market is pricing in too ambitious interest rate cuts.
– Interest rate cuts have been priced in, which in my view looks very aggressive, with the first US rate cuts occurring between March and May. After pricing in, the interest rate was supposed to be cut by more than a percentage point by the end of next year, Ren says.
However, he’s not overly concerned about the stock’s earnings: exactly when Interest rate cuts are not as dangerous as they are actual “Coming,” he says.
Ren also believes that the sharp rise in interest rates during this round will actually end well, and that central banks will bring their economies down gently and gently.
The US stock market is not particularly nervous either. According to the VIX index, there is little fear that the stock market will fall next month. Nordea Liv currently has shares slightly overweight.
– Growth prospects do not look particularly demanding for the stock market. Analyst estimates now point to ten percent earnings growth globally, which is quite normal when entering a new year.
He points out that profits usually end up somewhat lower, perhaps by five to eight percent.
– But with that and a dividend yield of 2 to 4 percent, you’ll get a perfectly normal return for stocks next year, as long as there are no negative shocks, like interest rates rising for example, more painfully than mine. belief. Or something big and unexpected happens, Ren says.
Otherwise, Norwegian house prices for November will be released next week, as well as the Norwegian and Swedish PMIs.
In addition, Norges Bank will publish its regional network report next week. A small group of the main characters have already been published by mistake. This data showed that companies expect zero growth in the fourth quarter, before an expected decline of 0.3 percent in the first quarter of next year.(conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using links that lead directly to our pages. No copying or other use of all or part of the Content may be permitted except with written permission or as permitted by law. For more terms see here.
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