Across the street from our house is an Indian Sign Tree. Native Americans would bend over young trees to hold the position and point travelers toward water or a trail. These trees were always helpful to the general community. Investors have taken notice of a couple of good, well-positioned signs too.
The S&P 500 stocks have rallied in the last 30 days over 5%. They are reacting to a positive Gross Domestic Product (GDP) report and positive signs from Federal Reserve officials.
Sign #1 GDP. Good news came on Thursday, October 27, 2022, when the GDP report showed it had grown by 2.6% from July through September. This change breaks the cycle of two negative GDP quarters in a row.
The American consumer is continuing to spend, which pushes up the GDP. For example, many consumers are still planning to buy a car and large appliances within the next six months as prices continue to return to normal, according to LPL. Families spent less than they did the previous quarter but still enough to prop up the economy.
Sign #2 Federal Reserve speeches. The Federal Reserve (Fed) officials are making their rounds and giving many speeches. The Fed speakers have been concerned with the effects of the rate hike pace. Analysts following these speeches hope this means the Fed is losing its appetite for rate increases. If they slow the rate hikes, as expected, it could help ease many of the bond market’s stresses.
We haven’t seen the Fed raise interest rates this aggressively since the 1970s. Unfortunately, the full effect of these rate increases takes a few months to play out. The Fed was slow in responding to inflation, and I hope they aren’t slow in responding to pumping the brake before their policies create economic damage.
Discovering Indian Trees was one of my favorite parts of growing up in the Ozarks. I would imagine what it was like to be an Indian walking a strange trail and being surprised to find a sign pointing me to water. As a boy, I would walk in the direction the tree was pointing and find the spring the thoughtful sign maker was pointing to. I hope the leaders of our country are paying attention to the signs as well.
Have a blessed week!
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