Based on the recent financial media coverage, the current Wall Street market sentiment appears cautiously optimistic, with several key indicators shaping this outlook. As the optimism improves we may expect the market rallying more. We even see bears slowly abandoning their stance and joining the rally. That trend may continue well into 2024. However, as of today, we would rate the optimism on Wall Street to be 7 out of 10.

However, there are still factors that implies caution over the developing bull market:

 

Federal Reserve’s Rate Projections

 

The Federal Reserve has indicated expectations of interest rate cuts in 2024, forecasting a peak at around 4.6%, down from a previous projection of 5.1%. This suggests a reduction in rates by 0.75% next year, with investors now betting on a roughly 60% chance of a rate cut by the end of the Fed’s March meeting. This scenario is influenced by the Fed’s revised inflation expectations, which show a faster than initially projected fall, with core Personal Consumption Expenditures (PCE) inflation anticipated to drop to 2.4% in 2024.
(source) (source)

 

Market Performance

 

U.S. stocks have recently ended higher, continuing a positive trend following the Federal Reserve’s dovish pivot. This suggests an overall positive sentiment among investors, with some adopting a cautious approach by favoring quality risk and companies that can withstand a potential recession.
(source)

 

 

Inflation and Consumer Sentiment

 

The Consumer Price Index (CPI) report for November indicated a trend of services inflation, which may become more persistent. Despite this, the general outlook is that the economy remains resilient, and inflation is continuing to decrease. The consumer sentiment, particularly regarding inflation expectations, is not signaling a recession, as a buoyant consumer base and a strong job market are positive indicators.
(source)

 

Commodity and Forex Markets

 

In the commodities sector, gold has seen a rally, highlighting its safe-haven appeal amidst uncertainties. The U.S. Dollar is on a breakdown watch after the Fed’s pivot, impacting various currency pairs like GBP/USD and EUR/USD. The forex market reactions suggest a nuanced view of the broader economic landscape, with different currencies responding to the shifting policy and economic indicators.
(source)

 
In summary, the current market sentiment leans towards cautious optimism, with expectations of interest rate cuts, a resilient economy, and a bullish outlook in certain sectors like commodities. However, there are concerns regarding persistent services inflation and the broader impact of the Federal Reserve’s policies on various markets.