The futures market points to a mixed open to today’s trading. No significant economic data were scheduled to be released before the bell. That said, investors will receive November readings from Standard & Poor’s on its “flash” purchasing managers index for the domestic manufacturing and services sectors, shortly. Both readings are expected to show improvement, with services activity continuing to expand, while manufacturing is still mired in a contraction. Yesterday, the Philadelphia Federal Reserve also posted manufacturing data indicating further deterioration within its territory. Too, investors will see the University of Michigan’s final gauge of consumer sentiment for the current month. Economists expect a modest level of 73.5, up a tad from the initial figure.
Earlier this week, Wall Street reviewed updated housing data, which sparked little enthusiasm. Additionally, initial jobless claims for the week ended November 16th fell short of estimates. On balance, trending economic data points support hope on the Street that the Federal Reserve will again cut short-term interest rates by 25 basis points, to 4.25%-4.50%, at its upcoming mid-December meeting. Before that happens, however, central bank authorities will parse scheduled inflation and jobs numbers releases.
During Thanksgiving week, new information will roll out on housing, consumer confidence, durable goods orders, third-quarter gross domestic product growth, personal income and spending and, of particular importance, the Personal Consumption Expenditures price index.
Lately, Fed officials have been disseminating somewhat inconsistent guidance on possible near-term interest-rate policy. Though the jobs market is losing steam, a few of these officials are concerned that the economy is too healthy and inflation too strong to steadily reduce the federal funds rate. President Trump’s promises to raise import tariffs and deport illegal immigrants have increased concerns about goods and services inflation. Potentially lower corporate taxes and less regulation could juice business activity. Other Fed officials believe that monetary policy is more restrictive than it should be, potentially hurting employment, consumer spending, and company earnings. Those in this category argue for additional, measured, monthly rate cuts into 2025.
We would not be surprised to see the federal funds rate decline to somewhere in the mid- to high- 3% range by the close of 2025. There’s still reason to believe that the Fed can execute a “soft landing” for the U.S. economy, circumventing a recession.
In the meantime, though displaying a bit more volatility, the domestic stock market indexes continue to gain ground. Through Thursday’s close, the three major market indexes were up in the 1% range this week. (The Russell 2000 small-cap index improved more than 2%.) Recent earnings announcements were generally positive, helping to wrap up a fairly decent third-quarter reporting season. Favorable standouts included Walmart (WMT), Williams-Sonoma (WSM), Snowflake (SNOW), and NVIDIA (NVDA). Restraining overall market momentum, though, were tepid reports from Target (TGT) and Qualcomm (QCOM). The prospect of U.S. antitrust officials forcing Alphabet (GOOG) to separate its Chrome web browser from operations was a drag, as well.
The tech-heavy NASDAQ composite and broader Standard & Poor’s 500 index appear on track to post stellar 2024 gains of 25% or better, while the blue-chip Dow Jones Industrial Average seems likely to at least hold on to a mid-teens advance. Given elevated price-earnings ratios, however, similar gains seem a tall order for 2025. We advise investors to maintain ample diversification of their portfolios, with a core weighting of leading large-cap equities. Volatility may pick up in the new year. – David M. Reimer
At the time of this article’s writing, the author held positions in none of the companies mentioned.
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