Over the past few years, many predictions have been made about the imminent collapse of the market and the U.S. economy as a whole, but the reality has been far more optimistic.

Were all the problems solved, or were there none at all?

Let's just say that the risks turned out to be less important than many assumed, and investors' faith in an optimistic future is much more severe and all-encompassing.

First thing first, although household savings were predicted to dry up due to high interest rates and rising costs, including still high inflation, this has not happened.

Yes, as the chart below shows, the personal savings rate is below the ten-year average, but there is no catastrophe. Consequently, consumer demand remained somewhat resilient.

US markets

As for the situation in the housing market, although mortgage applications have fallen, there is no question of a repeat of the 2008 crisis (so far).

The decline in demand is offset by the fall in supply. For the same reason, we do not see prices plummeting. Moreover, for many people, property is still the best asset protection.

What about the commercial property market?

Things could be better. The sector is bracing for a record number of loans coming due, raising the prospect of rising defaults.

Commercial debt maturities are expected to continue to rise, with more than $2.2 trillion maturing between now and the end of 2027, according to Trepp.

So far, most of these loans have been repaid or extended. In 2022 and 2023, many homeowners could exercise one- or two-year extensions built into their original loans.

As those extensions run out, many borrowers are forced to face a higher-rate environment.

What about U.S. sovereign debt?

The situation is similar to that of the commercial real estate sector: almost one-third of all outstanding U.S. government debt matures in less than a year. In dollar terms, that is about $7.6 trillion.

Some analysts fear that uncertainty about next year's funding squeeze is seeping through the steepening yield curve via the term premium.

In the long term, the country will spend more and more on debt servicing and less and less money on infrastructure development and education, for example...

So, if there are still problems, why does the stock market keep rising?

A diminishing uncertainty factor helps. First things first: Joe Biden signed a bill to avoid a shutdown. Thus, funding for some federal agencies was extended until 1 March and others until 8 March.

On the other hand, expectations of a change in Fed policy are rising.

According to J.P. Morgan, the January FOMC meeting would discuss the balance reduction schedule, which would be formally agreed upon at the March meeting and come into effect in early April.

The monthly limit for Treasury bond issuance may be reduced from $60 billion to $30 billion per month (and remain at $35 billion for MBS).

The Fed is unlikely to want to face a crisis in the interbank market before the presidential election. This means that interest rates could come down sooner than expected.

What's next?

In terms of how far the S&P 500 could rise, the general consensus among analysts is that the index will break the 5,000-point barrier this year. But much depends on the state of the economy.

In this regard, macroeconomic indicators, the liquidity situation in the U.S. financial system, and, of course, the Fed's rhetoric have to be taken into account.

From a technical point of view, it would be useful to look at the volume indicator to recognize the change in market sentiment.