Santa Claus Rally came a little early this year. Investors dived headlong into risky assets against a backdrop of softening rhetoric from Fed members and slowing inflation.

As a result, the dollar index fell by 3.5% in a month, the S&P 500 soared by 9.50% and the Nasdaq by 11.4%. Meanwhile, yields on ten-year Treasury bonds plummeted by almost 12%.

Gold did not disappoint either, rising to a six-month high of $2030. Fears of an escalation of the war between Israel and Hamas also contributed to the rise in gold prices.

Analysts say the yellow metal could test an all-time high just below $2,075 per ounce by the end of 2023. ING expects gold to average around $2,100 per ounce in the fourth quarter.

Also working in the precious metal's favor is the sustained demand from central banks, which bought a record 1,136 tonnes of gold last year and 800 tonnes in the first three quarters of 2023.

Triggers of Change

Let us now delve deeper into the reasons for optimism. Starting with the FOMC's Waller, who argues that, with inflation continuing to fall, it makes no sense to keep the rate at its current high level.

Other speakers maintain a similar stance, essentially rephrasing the message that current Fed policy is already adequate to bring inflation down to the 2% target.

This probably means that we will not see any more rate hikes this year and that next year, as the market predicts, the Fed will reconsider its monetary policy.

What is the outlook?

In their strategy for the coming year ("The hard part is over"), Goldman Sachs analysts have expressed a relatively optimistic view of the global economy and markets.

They expect that after the 2.7% growth of the world economy in 2023, GDP will increase by 2.6% in 2024 and 2.7% in 2025.

The most crucial point is the limited risk of a 15% recession in the US.

According to BMO Capital Markets Chief Investment Strategist Brian Belski's forecast, earnings per share for the S&P 500 in 2024 will increase by approximately 13.6% to $250.

As far as the stock market is concerned, Deutsche Bank, BMO Capital Markets and BofA Global Research expect the index to break all-time records, exceeding 5000 points.

Interestingly, Wells Fargo sees no potential for significant growth from current levels and expects a figure of 4625 points. Time will tell who is right.

Another reason for optimism

Another invisible reason for the recent surge in optimism was the increase in the amount of money held by central banks.

Usually, the rate of increase in reserves predicts the monthly performance of the S&P 500, and the recent growth in reserves occurred at the same time as the market's rise about a month ago.

Despite the reduction in the balance sheet, the increase in reserves came about because of the government's decision to finance a significant part of the fiscal deficit through treasury bills.

In addition, the Fed's message to hold rates higher for longer has encouraged money market funds to use the reverse repurchase facility to buy bills.

Thus, once the available investment money is reduced, equities could start to struggle. In this regard, it is crucial to follow the evolution of the volume indicator.