The broader market has seen a bit of a rally, with the S&P 500 (^GSPC) up about 9% since late October. This comes amidst cooling inflation, gains from Big Tech, and commentary from leadership of the Federal Reserve suggesting rate hikes may be over. But, will all of these lead to an extended recovery in the market? Deutsche Bank strategists (DB) have commented that the recent rally has "unwound the impact of the rates volatility and geopolitical shocks rather than pricing in upside to economic growth."
Yahoo Finance Reporter Madison Mills joins the Live show to break down the commentary from Deutsche Bank.
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- The market may have decided the Fed is done hiking rates, but that doesn't make it true. Still, strategists across the street are adjusting their year end calls to account for better than expected economic data. Here with the latest from Deutsche Bank is Madison Mills. Hey, Maddie, what have you taken away from this today?
MADISON MILLS: Yeah. So there's this question right now about what this market is pricing in. Is it a decision from the market's perspective that the Fed is done? Is it November kind of seasonality, technically speaking here? I want to pull up this quote from Deutsche Bank this morning, putting it into perspective for us. They say that this unwinding of the impact of rates volatility and geopolitical risk is what we're seeing here, rather than a pricing in of any upside to economic growth more broadly. And they really look at these three phases of the S&P 500 over the course of the past couple of months here.
First, they look at a garden variety slowdown in the S&P. Then they look at a little bit of a dip following some rate hike volatility, and then a third dip due to geopolitical risks. And if you look at of where the top line number is for the S&P, you can see that we've just kind of corrected and unwound the impact of those decliners on the S&P over the past couple of months. We're not in this euphoric, beautiful, post rally after those negative impacts there.
So Deutsche Bank's point is that we're just seeing this unwinding, and you can see that in this chart we've got up here now. These are the three phases of the S&P 500 correction over these past couple of months since June. But the last thing I want to note, you guys, is that these strategists say that the S&P is up 9% since its bottom three weeks ago. We're on track for the fourth week in the green. This could be the biggest November rally since November of 2020, which is when Pfizer announced the COVID vaccine. So that would be a huge potential upside for November here.
- Maddie, I think the big question here amongst many investors is how Deutsche Bank, for example, is looking at the recent gains that we've seen in a lot of these tech stocks. You had the NASDAQ coming off another weekly win, its best week that we've seen since June. So how does this play into their overall argument?
MADISON MILLS: Yeah so they looked at 63 sell offs since World War II, looking at where those sell offs left the overall market, and they say that the average stock here in the S&P is actually only re-coupling half of that sell off. But, guys, I can't leave without talking about the OpenAI story because I was glued to my phone all weekend, so I'm forcing that into my hip because I'm so obsessed with this story.
Microsoft getting a startup here that wasn't even for sale by getting Sam Altman here. A lot of strategists, including the Deutsche Bank folks this morning saying that this is going to be really critical to watch, in terms of the impact on year to date returns for the overall S&P, with Microsoft holding the second biggest weighting I believe on the S&P, so huge one to watch here. And I'm really interested heading into NVIDIA earnings tomorrow. Are we going to get some commentary on Microsoft kind of getting Sam Altman here, and what Satya Nadella's broader plan is going to mean for the S&P as we head to end of '23.