How hot has the stock market been recently? Even the lowly Russell 2000 index has traversed back to its range highs, although it remains some distance from its all-time highs. The “Everything Rally” has brought even the small caps to the party.

Part of the reason is improving liquidity, a surprise trend, despite the Fed’s ongoing Quantitative Tightening (See chart titled “Overall Liquidity.”).
 
However, the biggest reason is this: The stock market is having itself a Pivot Party. After a long hawkish campaign, the Fed pulled an about-face last week and hinted that rate cuts are next, starting in 2024. I agree with the logic, but a cynic might argue that the Fed is being more dovish than it needs to be and that it’s doing so as we head into an election year.
 
The new dot plot (see chart titled “The Fed & The Market”) suggests there will be three rate cuts in 2024, although the market has quickly priced in more than that. Nevertheless, the forward curve is more or less aligned with the Fed’s 2025 dots, with the caveat that those dots are quite dispersed.