Wall Street Throws Caution to the Wind to Keep Up With Stock Rally

It’s the major casualty of November’s sizzling stock rally: Investor caution.

Thanks to what’s shaping up to be one of the biggest market meltups over the last 100 years, demand for protective strategies has all but evaporated. Professional and retail traders are battling to keep pace with an S&P 500 that has advanced almost 9% this month alone. Erstwhile defensive refuges — everything from inflation-protected bonds to cash ETFs and bearish options — are being jettisoned. In their place: Surging appetite for junk bonds and small-cap equities.

Powering it all is belief that the Federal Reserve is done raising interest rates and will start cutting them in 2024 — speculation that has portfolios split 60/40 between shares and bonds on track for their best month since 2020.

Minutes published Tuesday reinforced unity among money policymakers in proceeding “carefully” when it comes to the interest-rate path as they seek to rein in inflation back down to their 2% target.

“The Fed’s willingness to pause here and look through the strong data is allowing soft landing optimism to take over,” said Priya Misra, portfolio manager at JPMorgan Asset Management. Yet “the lack of hedging reflects complacency on inflation and living on a prayer.”

balanced strategies post gains

The S&P 500 jumped 1% for its fourth straight weekly advance, a period that has featured just three down sessions in 19 trading days. The benchmark is on track for a November gain that surpasses all but five since 1928. The Russell 2000, which investors look to for cues on the health of the economy, also edged higher by 0.5% this week. The Bloomberg 60/40 index has gained almost 7% this month alone.