As we headed to the final session of the year, stock futures were hovering around the unchanged mark. In overnight trading, markets in Asia closed mixed, while the major European exchanges were in the plus column. Elsewhere, oil prices have moved higher, with West Texas Intermediate up about 0.5%, to around $72.10 a barrel.
Stocks have posted an impressive rally to close out a strong year. The tech-heavy NASDAQ composite is up just over 44% in 2023, marking its best showing in 20 years. The S&P 500 has gained 24.6% so far, placing it just half a percentage point from its previous closing high, set in early January of 2022. Meanwhile, the Dow Jones Industrial Average has risen 13.8%.
A good part of the end-of-year run-up was fueled by growing confidence that the Federal Reserve was likely done raising its benchmark overnight lending rate. Indeed, at its last meeting for the year, the central bank even went so far as to hint that there would be at least three rate cuts in 2024. However, Wall Street is apparently expecting even more, with the Fed Funds Futures suggesting a greater-than-60% chance that the target rate will be down a full percentage point (to 4.25%-4.50%) by the end of July. Also helping the case for equities, the yield on 10-year Treasury bonds fell from over 5% in the latter part of October, to under 3.9% this week.
Economic news is relatively light for the rest of the holiday shortened week. Yesterday, the Department of Labor released its latest report on Initial Jobless Claims, indicating that 218,000 individuals filed for unemployment insurance for the first time last week. This was up from 206,000 the week before and above the consensus expectation of 210,000. This added further evidence that the Federal Reserve’s money tightening policy is having the desired impact. Also, the National Association of Realtors released its Pending Home Sales Report for November, which showed a flat reading. Wall Street analysts were calling for a month-to-month increase of about 1%, versus a decrease of 1.2% in October. The news pace will pick up considerably once the calendar flips, with key reports due on U.S. manufacturing and services activity, auto sales, nonfarm payrolls, and the unemployment rate all due next week. – Mario Ferro
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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