A few months ago, I said “soft landing” was a useless term that just described more of the same stuck-between-good-data-and-recession-fear sideways action we’d been seeing for months. Now there’s increasing conviction that we have actually landed softly – and conviction means piles of cautious cash that had been sitting on the sidelines is now being invested, explains Gwen Preston, editor of Resource Maven.
In other words, it’s like we’re finally past the oh-so long period when traders wanted rate cuts above and beyond anything else. Which was weird, because most often central bankers only cut rates when the economy needs help.
Why did traders want that? Well, they didn’t want a weak economy but they had gotten so used to easy money driving an ever-rising stock market that they wanted money to get easier again, context be darned. And so there was this longstanding backwards assumption: That the Fed would hike us into a recession, which wouldn’t be great, but that they’d cut rates in response, which would be great because it would send new easy money flowing into the market.
That line of thinking drove me nuts. Thankfully, there is now a new rate cut dream: With inflation handled but the economy doing fine, the Fed will gradually cut rates just to keep a good thing going.
That new dream is apparent in the market no longer expecting rate cuts until March next year at the earliest: Investors no longer think we’re heading into a recession. And that is letting market participants settle into what is happening (not what they think is supposed to happen), which is pretty good stability and growth, with employment rates that are strong but not so strong they stunt growth.
Bottom line: The role of rates has finally diminished. Yes, they are high. Yes, we will very likely still see impacts from that historic hiking cycle. But no, we don’t need rates to drop for things – the market and the economy – to work.
As that new reality sets in, investors should be able to invest in growth – not growth stocks but overall economic growth. It takes time for mindsets to shift, especially when the risk of recession down the road still lingers, so I don’t expect investors to flood into copper and iron ore tomorrow.
But I do think a growing sense of confidence that this soft landing is real will slowly motivate money to invest for the future, rather than positioning for protection. The benefits won’t materialize this summer. It takes longer than that for the market to change gears. So, over this summer I think the only metals and mining stocks that will really shine will be those announcing discoveries.
If things go well – if inflation does not perk back up, jobs remain strong, and there isn’t a preliminary-level catastrophe like a wave of insolvencies or an energy price spike – then investor interest in metals might build, lifting prices and re-rating valuations for producers and developers.
