Market Perspective for December 17, 2023

The past week brought inflation data for November and the Fed’s interest rate decision. More importantly, the Fed seems to be pivoting to the idea that rate cuts are on the horizon in 2024.

On Tuesday, the first important news release took place as the CPI report for November was made available to the public. On a yearly basis, inflation dropped .1 percent to 3.1 percent, which was exactly what analysts predicted. However, on a monthly basis, inflation went up .1 percent whereas analysts had expected it to remain flat. Core CPI was up .3 percent for the month, which is what experts had predicted.

Although the Fed’s rate decision Wednesday afternoon was the main event for the week, it was not the first report released that day. Wednesday morning saw the release of the Producer Price Index (PPI), which found that prices remained flat for the previous month. Furthermore, it found that core PPI was also flat, despite the belief that it would go up .2 percent.

As expected, the Fed did not raise rates. In remarks made after the decision was released, Fed Chair Jerome Powell said that recent data showed a path to sustainable reductions in inflation over the next several months. He also mentioned that there was a possibility of rate cuts starting in March 2024.

Of course, there was some pushback on that idea by other Fed members, but it did mark a significant change in tone by the central bank. Over the past several months, the Fed has stood by the assertion that decisions would be driven by data and that rate increases were still possible. Ultimately, this relatively dovish stance is an indication that the worst may be over and that risks are shifting from being too accommodating to being too restrictive.

Ironically, this could create another temporary round of inflation as markets respond positively to the news. In anticipation of rate cuts, investors, businesses and consumers may start to pour money back into the market.

On Thursday, it was revealed that retail sales were up .3 percent as opposed to down .1 percent as analysts had expected. It was also announced Thursday morning that unemployment claims were down to 202,000 from 219,000 a week ago. This could mean that there is still upward price pressures being placed on the market. Of course, the uptick in job creation could also be a result of the holiday season and the temporary labor most companies add this time of year.

On Friday, the Empire State Manufacturing Index came in at -14.5, which was well under the positive two expected by analysts. The Flash Manufacturing PMI was also lower this month coming it at 48.2 compared to 49.4 in October.

The Dow was up 2.58 percent to close at 37,319, which is both a yearly and all-time high for this market. It would make a low of the week on Monday when it opened at 36,274 and would simply continue to rise during the next four trading days. For the year, the Dow is up 12.41 percent or 4,110 points.

The S&P 500 was also up this week by 2.5 percent to finish at 4,723. As with the Dow, the S&P 500 made its low of the week on Monday and would spend most of the week climbing to new highs. It would make its high of the week on Thursday when it hit 4,732. For the year, the S&P is up 21 percent or 828 points.

Finally, the Nasdaq was up 3.2 percent to finish at 14,831. As with the Dow, it would make a low on Monday of 14,347 before reversing and spending the rest of the week making new highs. The Nasdaq made its high of the week on Thursday at 14,840. For the year, the Nasdaq is up a whopping 37 percent.

The upcoming week is certain to be busy at it is the final full week before the Christmas and New Year’s holidays. The final gross domestic product (GDP) figures for the previous quarter are due on Thursday along with unemployment claims for the previous week. In addition, the Consumer Board and the University of Michigan are set to release consumer confidence reports on Wednesday and Friday, respectively. Finally, monetary policy statements and inflation figures are set to be released by central banks in Australia and Japan on Monday, Canada on Tuesday and Great Britain on Wednesday.

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