The Impending Economic Slowdown Should Be Good for Markets

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In November, Treasury rates dropped, and risk assets rallied. The market expects continuing drops in inflation and slower, but not disastrous, growth. The data support the market's sanguine assessment.

November of 2023 saw a massive rally in risk assets and a large drop in Treasury yields.

S&P 500 index

This rally in risk assets and Treasury bonds can be traced to two sets of macro announcements. In early November, there was a weak ADP employment report, which was followed by higher-than-expected jobless claims, weaker-than-expected non-farm payrolls, and a higher-than-expected unemployment rate. November 14th brought benign inflation numbers, with core and ex-food-and-energy CPI all coming in lower than expected.

U.S. inflation