My daughter plays club soccer. Like most teams, the roster changes every year as girls come and go for various personal and family reasons. And because the roster changes, it always takes a while for the team to gel when a new season gets underway.
Earlier this season, my daughter’s team lost to another club. It was a tough loss too. Our team was never in the game. They came out flat. The pace of their play was slow. Their passes were off. They missed a lot of shots. From start to finish, the team never clicked. And so it was that when my daughter’s team had a rematch toward the end of the season, I’m embarrassed to say I didn’t expect anything different. But unlike that earlier game, our team played fast, they communicated with each other, and they brought a lot more energy to the field. I wish I could say their efforts paid off with a win, but even with a tie, the girls were all smiles as they walked off the field. They played a better game, and they knew it.
A shift in momentum like what my daughter’s team experienced happens elsewhere, including the stock market. And just like in sports, sometimes all it takes is a spark of optimism, or worry, to send things moving in the other direction. We’ve seen plenty of momentum swings in the markets over the last few years. Rising inflation and interest rates, declining corporate profits, economic malaise, and the recent midterm election have given investors plenty of things to worry about. And true to form, investors have channeled that worry into selling investments and driving down the market. But just as they can be skittish and prone to overreact, investors are also hopeful, especially in the U.S.
Recent reports have been nothing to cheer about in and of themselves. Inflation is still running at an annual rate of 7.7% and the Fed funds rate is 3.75% and going higher. But investors also know that inflation is cooling, and the Fed is likely to slow the pace of rate hikes. This doesn’t mean economic conditions are back to normal, but it does mean that a more normal environment may be on the horizon. Improvement gives us hope, and investors’ hope that brighter days may still be ahead, is all it took to shift momentum and propel the market higher in recent weeks.
It is unlikely that the markets will continue a steady march upward from this point forward. There is always an ebb and flow to momentum and the ride will be bumpy. Until inflation is where it’s supposed to be—hovering around 3% or less—the actions of Congress and the Fed will keep downward pressure on assets. But investors are already hopeful. Despite the challenges we face, they are looking for the good news and finding reasons to pass along an infectious optimism.
Counting our blessings comes naturally to many of us this time of year. Americans often give thanks for having family and friends to spend the holidays with, for having good health, or for having a good job. Many of us are also grateful for the opportunity to live in the greatest nation in the world in the moment of its greatest prosperity. And with that gratitude, we remember our lives wouldn’t be nearly as blessed if it weren’t for the sacrifices of the brave men and women who serve in our military and law enforcement. And while it certainly doesn’t rank as high as family, health, or safety, we can also give thanks this holiday season for the hope made possible by these other blessings—the hope that our best days are still ahead.
~ Travis Raish, CFA