Why October's stock market rally is 'on shaky ground'

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The gains have come despite the threat of even higher interest rates and a subpar earnings season thus far

may have come on too hard, too fast in October given the negative news facing investors into year end.

"We believe the October rally in risk assets is really on shaky ground because markets previously were looking for a dovish pivot from the Fed and then they were looking for a pause from the Fed," BlackRock Chief Investment Strategist. "So it feels like markets want to see some positive development in terms of a dovish message from the Fed. But really we are not at that juncture yet because if you look at core inflation, it's still very, very sticky.

The Dow Jones Industrial Average is up 14% in October, on track to notch its best performance since 1976. Gains for the Dow have been rather broad-based — including an 18% increase for JP Morgan and a 13% pop forThis content is not available due to your privacy preferences.These gains have come despite the threat of even higher interest rates and a subpar earnings season .

"We believe that rates will continue rising," Li explained. "It will peak at 5%. And not too understate it, that's a very, very restrictive territory. In fact, where we are now, at 3.25%, is already restrictive to the economy. So our belief is that in this current supply-constrained environment, the Fed is going to have to engineer a recession in order to bring down inflation.

 

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