Good morning! November has indeed been a remarkable month, marked by a swift upward move in risky assets. Bonds led the way, with equities following suit and registering returns double that of broad bond indexes. Quant funds shifted around $140 billion into equities (from short to long positions), while real money saw a more muted swing toward risky assets, approximately $100 billion.
Recent comments from Weller suggesting that the Federal Reserve is well-positioned to slow the economy in a manner that could bring inflation back to 2% supported the case for bond bulls. However, easing financial conditions over the past month pose a potential hurdle if economic conditions don't deteriorate. Recent Treasury auctions have also seen diminishing interest from international investors (indirect bids), indicating that the Federal Reserve might be cautious about depleting positive real rates and risking significant USD depreciation, leading to structurally high inflation.
In Europe, negative month-on-month inflation data (-0.4%) persists, and I still believe that deflationary prints might be seen in Q1. Despite this, heavy issuance in investment-grade bonds has occurred due to increased investor appetite.
Regarding corporate results in equity land, there hasn't been much to note. Selected high-growth names in security (PANW, CRWD) and software services have shown excellent growth rates, reaching all-time highs. CRM (Salesforce) stood out among large-cap companies, providing a solid organic guide for 2024. While general market leaders have somewhat stalled, positive action is becoming more widespread. I have been adding beta through biotech and small caps and will ride the wave until any signs of a break. Concerns about general euphoria and complacency, reflected in collapsing put-call ratios, are notable warning signs but manageable for now.
Alexandros Tavlaridis