Cue a rally across practically everything. The Dow Jones scored a second straight record-high close last night, gold has vaulted back above $2,000 an ounce and bitcoin posted a third daily rise.
Stocks are pricing for a Goldilocks-themed 2024 – one where growth slows, but not so badly as to tip the economy into recession – while bonds have embraced the prospect of the scale of rate cuts that usually bring with them a sharper slowdown.
Both cannot be right and 150 basis points of cuts look ambitious, given the labour market is robust, consumer spending is holding up nicely and financial conditions are already at their loosest since July, according to an index compiled by Goldman Sachs.
For now, no one is too bothered about the details. There is also the issue of the huge amount of cash simply parked on the sidelines in money market funds.
Data from the Investment Company Institute this week shows a total of nearly $6 trillion parked in money market funds. Some of that at least will, at some point, be looking for a home, one preferably with some yield attached.
BlackRock data that stretches back to 1995 shows cash has returned an average of 4.5% in the year following the last rate hike of a cycle by the Fed, while U.S. equities have jumped 24.3% and investment grade debt by 13.6%.
