As we discussed yesterday, the market has swung in recent trading days from pricing in no cut in December, to pricing in a cut.
If they cut rates on December 10th, that would be three consecutive quarter point cuts.
And if we listen to what they've said about the Fed balance sheet, we should expect the Fed to be expanding the balance sheet "soon" after the Fed official ends quantitative tightening (on Dec 1).
With that, we have this confluence of Fed action that rhymes with 2019 — three consecutive quarter point rate cuts, and a return to expanding the balance sheet to respond to "tightening liquidity conditions" (as Jerome Powell described things last month).
That 2019 formula was very good for stocks.
What else has been good for stocks, over the past three years? A ten-year yield under 4%. As you can see below, we're sitting on it. A break below, that persists, would be a tailwind for financial conditions.
A ten-year with a three handle, would (should) narrow the performance gap we've seen between small caps and large cap tech since the onset of the easing cycle last year (i.e. small cap outperformance).
