Why didn’t the stock market fall more Tuesday? For me, it boils down to two things: the FOMC surprise move, which ratcheted up total rate cut expectations for January, and seller exhaustion. It’s hard for the market to fall hard when you have already had a high level of down volume net of up volume, and huge amounts of 52-week lows net of 52-week highs. This wasn’t just true of the U.S., but of most global equity markets.
So, if we are going down further, the market will have to rest a while. That said, valuations are more compelling than they were, especially compared to Treasuries. Compared to BBB corporate yields, they are still attractive. I think I would need to see 10-year BBB corporates at yields of 7% or so before I would begin edging in there.
One other note, the forward TIPS curve is showing some life again; Perhaps that will be another fake-out, as in August, but there is certainly more oomph in the inflationary effort now than when the stimulus effort was grudging and fitful, as it was back then.