Nordea Markets sees hope: – It will be good news for the stock market

It has been another week of major market volatility, Eric Bruce and Joachim Bernhardsen conclude in this week’s Nordea report.

“The way forward for the market remains uncertain, but for the first time in a long time we are finding arguments that higher long-term interest rates will slow,” strategists wrote.

The market is tired of bad news

When the US inflation figures for September were released on Thursday, the immediate reaction in the market was as expected, the duo believed: interest rates rose and stocks fell.

“The biggest surprise was that the reaction quickly turned positive. S&P 500 futures fell 2.4 percent one hour after the CPI figure, but ultimately, ended Thursday with a 2.5 percent rise on the S&P 500 It’s an intraday rise of 5.52 percent, something analysts like Eric Bruce have rarely seen in their long lives.”

Interest rates have also changed: the 10-year US government bond yield rose to 4.07 percent, but at the end of the week it was at 3.9 percent, roughly where it was when the week began.

“You shouldn’t put a lot of stocks in a move like this, but it shows that the market is tired of bad news.”

Less need for more interest rate hikes

Bruce and Bernhardsen write that interest rates are now at levels in line with the US central bank’s (Fed) expectations for a key interest rate, while real interest rates are now higher than they were when the Fed raised rates in 2018.

“This means that monetary policy should now have the tightening effect that the Fed is looking for. Thus, the need for further rate hikes is less,” write the strategists, who also note that many Fed members are starting In stressing the dangers of tightening them too much.

Ultimately, the duo believes that investors still have to prepare for significant moves either way.

“If there is no evidence of a cooler labor market in the US, the market may adjust its view on the Federal Reserve and send interest rates higher. However, for the first time in a while, there are many strong arguments against another rate hike. In that case, it should be good news for the stock market.”