In the fourth quarter of 2023, the Federal Reserve (the “Fed”) shifted to a more dovish stance and fueled speculation that rate cuts could be on the table in 2024. Risk assets seized on this pivot and staged a furious rally. Equities put on a “light show” reminiscent of the moonshot of later 2020 then driven by trillions of Covid relief money. Fixed Income also participated as hopes were high that inflation was vanquished and that a redux of the 1970s rate cycle would not be repeated. Not surprisingly, Alternative Investments (“Alternatives”) lagged as risk managed approaches or strategies lacking significant beta received punitive treatment by investors. Economic growth and unemployment have yet to show the effects of the steep rise in rates of the past 21 months while inflation data has fallen from its highs but is now flattening out at levels still above the desired 2% range. In our view, the market sentiment seems to be declaring that the war on inflation has been won, central banks are operating with the skill of neurosurgeons not lumberjacks, and the money pumps of the 2010s could and should be turned back on again. To those who believe monetary policies take a while to work through the system and aren’t quite as sold on the skills of central bankers, it might evoke images of President George W. Bush standing on the aircraft carrier USS Abraham Lincoln in 2003 against a backdrop with a sign declaring “Mission Accomplished”.

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