Stock futures are not far from breakeven levels this morning, as the key market indices are trading just below all-time highs. No major economic reports will be released this morning, and few companies will be reporting quarterly earnings, suggesting that changes in sentiment will driving stock trading today. Traders are looking to see if the market can break all-time highs by continuing a trend of higher prices that began in late October. The Dow Jones Industrial Average has already hit several new highs in recent weeks. Additionally, most eyes will be looking towards 2024. Consensus predictions are for no recession in the upcoming year, with the U.S. Federal Reserve pivoting to reductions in interest rates later in the year; if such reductions are delayed, or slower than some traders anticipate, equities could see a pullback.
The stock market started strongly yesterday, as traders bought stocks following the closed market on Christmas. The S&P CoreLogic Case-Shiller Housing Index was up 4.8% year over year in October, showing a reacceleration of home price costs in several key markets. Investors should note that housing prices have been a key component of inflationary data, and have remained stickier than other areas of the economy, even during the period when mortgage interest rates were hitting multi-year highs. Still, the stock market trended higher through much of the day, ending near their apexes before a slight sell-off into the close.
Overall, the S&P 500 rose 20 points (up 0.42%), the NASDAQ increased 82 points (up 0.54%), and the Dow Jones Industrial Average finished higher by 159 points (up 0.43%). Moreover, market breadth was rather strong, with advancers outpacing decliners by a 2.8-to-1.0 ratio. All 11 sectors of the market were in the green yesterday. Energy issues were amongst the best performers, aided by a bounce in the related commodities. Meanwhile, healthcare stocks were among the weakest, though only on a relative basis.
In commodity news, oil prices rose yesterday as trader sentiment continued be positive, based on anticipated demand levels. This occurred despite news of the U.S. oil industry far surpassing its prior production records in 2023. Elsewhere, U.S. Treasury yields were largely lower yesterday, falling as traders priced in potential coming rate cuts in 2024. Though the yield curve remains inverted, with short-term rates trading higher than those with longer durations, it remains well off the wider spread levels of earlier this year. Additionally, traders are now pricing in low odds that the Fed will cut interest rates as early as the January 31st Open Market Committee meeting. However, we do not anticipate interest rate cuts coming that early. The Chicago Board Options Exchange Volatility Index, or VIX, commonly known as the fear index, slid yesterday as traders demanded less options protection.
Several economic reports will be released before the calendar year ends. These include initial jobless claims, pending home sales, and advance retail and wholesale inventories on Thursday, while the Chicago Business Barometer will be reported on Friday. Investors should also note that the bond market will close early on Friday ahead of the three-day New Year’s holiday weekend. Few earnings reports will be released in the days ahead, and most of those releases will be from foreign entities. - John E. Seibert III
At the time of this article’s writing, the author did not hold any positions in the companies mentioned.
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