As investors seek further confirmation that price pressures are easing, the Federal Reserve’s preferred inflation gauge will take center stage next week. The November personal consumption expenditures (PCE) index is set to be released on Friday, following the consumer and producer price indexes from the previous week that showed the Fed’s efforts to cool inflation are taking hold. These developments have bolstered investor confidence that the central bank may start cutting rates. With the Dow Jones Industrial Average rallying over 2% this week and closing above 37,000 for the first time ever, as well as the 10-year Treasury yield falling below 4% for the first time since August, the market is optimistic about the potential for rate cuts next year. However, any indication that the Fed may not proceed with rate cuts as suggested could negatively impact stocks.
Despite the positive market sentiment, New York Fed President John Williams recently stated that rate cuts are not currently being discussed at the central bank. This statement cooled investor sentiment somewhat, as it undermines the expectation of rate cuts in March next year. Bryant VanCronkhite, a senior portfolio manager at Allspring Global Investments, emphasized the importance of monitoring any information that challenges the narrative of future rate cuts. He believes that multiple data points over the coming months will ultimately determine the Fed’s decision.
Bank of America predicts that the core PCE, which excludes food and energy prices, will only see a 0.1% increase for November and a 3.2% rise on a yearly basis. These figures align with the Fed’s target of a 2% annualized inflation rate. Therefore, the PCE index is expected to confirm the trend of easing inflation.
Market Performance and Earnings Reports
Despite some investors anticipating a pullback in stock prices after the recent rally, the S&P 500 and Dow registered their seventh consecutive week of gains – the best winning streak for the S&P 500 since 2017 and for the Dow since 2019. This Friday, known as the Triple Witching Day, is expected to have higher trading volume due to the expiration of stock options, stock index futures, and stock index options contracts. However, the following week is projected to have lighter trading volume as investors enter the holiday weekend.
Several notable earnings reports are on deck next week, including FedEx on Tuesday, General Mills on Wednesday, and Nike on Thursday. These reports will provide insights into the state of the consumer and offer clarity on international markets, particularly China.
Investors are optimistic about a “Santa Claus Rally,” a period between Christmas Day and January 2nd when stocks historically perform well. Although the market is currently overbought, Jay Woods, chief global strategist at Freedom Capital Markets, suggests that the tailwinds supporting the market are tremendous, contributing to a broad rally.
Week Ahead Calendar
Here are some key events and economic indicators to watch next week:
– Monday: NAHB Housing Market Index at 10 a.m. ET.
– Tuesday: Preliminary Building Permits and Housing Starts for November at 8:30 a.m. ET. Earnings report from FedEx.
– Wednesday: Q3 Current Account at 8:30 a.m. ET. Consumer Confidence for December and Existing Home Sales for November at 10 a.m. ET. Earnings reports from General Mills and Micron Technology.
– Thursday: Final Q3 GDP Chain Price and GDP data at 8:30 a.m. ET. Initial Claims for the week ending December 16th at 8:30 a.m. ET. Philadelphia Fed Index for December at 8:30 a.m. ET. Leading Indicators for November at 10 a.m. ET. Earnings reports from Nike and CarMax.
– Friday: Preliminary Durable Orders for November at 8:30 a.m. ET. Core PCE Deflator, PCE Deflator, Personal Consumption Expenditure, Personal Income for November at 8:30 a.m. ET. Final Michigan Sentiment for December at 10 a.m. ET.
The upcoming week presents a range of economic indicators and earnings reports that will provide further insights into the market’s direction and potential factors influencing investor sentiment.