Single day events aren’t normally something we should get fussed about. But as an avid fan of tennis, I’m declaring yesterday’s market move “The rally of the decade”.

 

In the US, the NASDAQ: which is the more tech-focused market index, went up 7.4% yesterday! Outside of the crisis-level rebounds seen in 2000, 2008, and 2020, this is the largest ever single day increase for that index. Virtually every asset was up substantially yesterday – even Bitcoin was up over 10% yesterday, despite the ongoing drama unfolding with FTX. (Which is really fascinating: it appears it’s just another plain-vanilla fraud perpetrated by a charismatic charlatan, who stole clients’ money to make reckless bets, and then got margin calls, on a massive scale).

 

Here’s the chart of 1-day gains:

 

So, what was the catalyst for my so called “rally of the decade”? On the surface, something as seemingly benign as inflation coming in modestly lower than expected? Headline U.S. inflation increased at a 7.7% year over year pace, which was about 20 bps lower than expected. Although this shows that inflation pressures remain strong and well above target, the market has been desperate for a shift in this year’s narrative of consistently higher than expected inflation prints. As such, investors seemed to be hoping that yesterday would finally mark the inflection point after 10 months of painful draw downs in multi-asset portfolios.

 

Certainly it could end up that we look at November 10th as the beginning of a return to “normalcy” and the start of a significant and sustained market rally in the coming quarters. It is too early to declare victory over inflation. But it’s the trend that hopefully maintains which is favorable. Goods inflation is certainly showing signs of weakening, and Thursday’s data-point is unambiguously positive for assets. But shelter costs will continue to be buoyed by homeowners refinancing higher (which should logically flow through to rent as well), and services inflation will be more difficult to tame unless we start to see some weakness in labour markets. For what it’s worth, it’s now expected the in the US, the next Fed decision on rates will be a 50 bps hike (down from the last 4 75 bps hikes, and this 50 bps would be the same as we did here in Canada.

 

The markets remained opened today, on Remembrance Day, to mark the end of the First World War. I trust we all were able to spend some time reflecting on the sacrifices of those who served our countries and fought in those times of war. With the conflict we are witnessing today, it brings attention to the bravery of so many who fought then and fight now for their countries.

 

Have a great weekend!