(MENAFN) The unexpected surge in the Standard & Poor's 500 by nearly 20 percent in late 2023 has taken many pundits and market observers by surprise, defying earlier expectations. The resurgence of optimism in November is notable, especially as signs of a potential interest rate peak emerge, fueled by positive news on inflation and robust economic growth.
As highlighted in a recent Financial Times column by Katie Martin, a survey conducted by Bank of America revealed that a record 61 percent of investors anticipate a decline in returns in 2024. This sentiment has prompted decisive market reactions, with 10-year bond yields experiencing a drop of approximately 40 basis points, accompanied by a 10 percent increase in stock prices—logical responses to shifting expectations.
Optimism is further underscored by indicators such as the American Association of Individual Investors' Investor Sentiment Survey, which witnessed a significant uptick last month. Bullish expectations for profits also contribute to the positive outlook, with projections indicating an 8 percent annual growth in profits for 2023, followed by an expansion of 11 percent in 2024.
Contrary to expectations of a recession or significant slowdown, Goldman Sachs's preferred measure for gauging stock market expectations on economic growth suggests a real GDP growth of 2 percent. The optimism extends to corporate credit markets, where absolute yields have declined this month. Notably, fund flows into corporate bonds, especially high-yield ones, are at their highest levels in three years. Despite this, spreads on high-yield bonds versus Treasuries remain relatively weak at 3.9 percent, compared to their historical average of 5.4 percent.
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