The Week On Wall Street
First off, we wish you a wonderful holiday season and hope that 2024 is your best year yet. This will be the last update of the year unless something unexpected pops up. Now, on with our regularly scheduled update.
Markets reacted positively last week to cooler inflation and the idea of potential rate cuts next year, adding to the gains of the market’s year-end rally. The Dow Jones Industrial Average rose 2.92%, while the Standard & Poor’s 500 gained 2.50%. The Nasdaq Composite index picked up 2.85% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, tacked on 2.75%.
Stocks gathered momentum last week after upbeat news from two key inflation reports. But the outcome of the Federal Open Market Committee (FOMC) meeting on Wednesday powered the week’s advance. The combination of the FOMC signaling three rate cuts in 2024 and dovish comments by Fed Chair Powell led to a sharp drop in bond yields and a spike in stock prices, with the Dow Industrials closing above 37,000 and setting an all-time high. The rally continued the following day as beneficiaries of lower rates, such as smaller capitalization stocks and real estate, rallied. A solid retail sales number, which reflected a strong consumer and supported the soft landing thesis, also boosted enthusiasm.
The anxiously awaited read on November inflation came close to market expectations, with a 0.1% increase over October and a year-over-year increase of 3.1%. Core inflation, which excludes energy and food prices, came in a bit hotter, rising 0.3% month-over-month and 4.0% from a year ago. A 2.3% decline in energy costs helped offset a 2.9% jump in food prices. Shelter prices remained stubbornly high, rising 0.4% from October and 6.5% from last November. The inflation news was better on wholesale prices, tracked by the Producer Price Index (PPI). Producer prices were unchanged in November and higher by just 0.9% year-over-year. Excluding energy and food, the monthly increase was also unchanged.
This Week: Key Economic Data
Tuesday: Housing Starts.
Wednesday: Consumer Confidence. Existing Home Sales.
Thursday: Gross Domestic Product (GDP). Jobless Claims. Index of Leading Economic Indicators.
Friday: Durable Goods Orders. Personal Income and Outlays. New Home Sales. Consumer Sentiment.
This Week: Notable Companies Reporting Earnings
Tuesday: FedEx Corporation (FDX)
Wednesday: Micron Technology, Inc. (MU), General Mills, Inc. (GIS)
Thursday: Nike, Inc. (NKE)
Well, the Fed blinked last week and the markets have responded. The Santa Claus rally is here. Enjoy it. The Fed signaled they may cut rates next year. There is a lot to unpack around that. Too much to unpack here. We will do that in our quarterly update that will go out in early January. Meanwhile, markets are rallying in the near term, but don’t forget next year is an election year. How could you forget, right? I’d like to fall asleep and wake up when it’s over. Nonetheless, that typically means some volatility for stocks. It doesn’t mean the wheels have to come off, I don’t think that. However, there will probably be some back and forth as we see what the narrative is around rate cuts sometime in 2024.
As I write, the S&P 500 sits around 4,750. I just want to point out this time last year, most “experts” had the S&P 500 ending this year between 3,200-4,200. Boy were they wrong. It just goes to show the market likes to prove as many wrong as it can. One has to be sober about the markets, but be careful getting too negative. Betting against the market and American consumer for too long hasn’t turned out well. This is where I'm tempted to say "Told ya so," but I won't. There were one or two analysts who called for markets to end the year at these levels, so kudos to them.
Just because this is the last update of the year doesn’t mean we aren’t watching. Should something out of the ordinary materialize, we are here. I hope 2023 was rewarding for you in every way possible and pray you are blessed beyond measure in the new year.