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Caution Remains Warranted
In late October both the Nasdaq and S&P 500 entered correction territory following a weak third quarter for equity prices. The reasons behind falling stock prices have been higher interest rates and weak earnings guidance from corporate executives worried about the threat of an escalation to the war in the Middle East. By the end of the month, the S&P 500 closed about 10% below its recent peak in late July.
In the opening week of November, U.S. equity markets sharply reversed course and surged by more than 5 percent. The apparent catalysts for this strong rally were several softening economic indicators and the Federal Reserve’s widely anticipated decision to maintain the target Fed funds rate at 5.25-5.50%. In what is a widely recognized irony of the capital markets, investors were cheering a weaker economy in the hope the Fed would begin a shift to cutting interest rates in 2024.