After notching a fifth consecutive week of gains, the major U.S. indexes took a breather on Monday, and the futures are suggesting stocks will move lower at the start of today’s session. In overnight trading, markets in Asia were down, but most of the major European exchanges are in the plus column. Meanwhile, oil prices have backtracked, with West Texas Intermediate falling about 0.6%, to around $72.60 a barrel.
The market’s rally has broadened of late, with the Russell 2000 (an index of small-cap stocks) rising 1% on Monday, making for an almost 7% advance over the last four weeks. The enthusiasm appears to be fueled by rising expectations that inflation is getting under control and the Federal Reserve will soon be able to reverse course and begin cutting its overnight lending rate. Small-cap companies tend to be more dependent on borrowed money and other external financing, and their shares tend to benefit from expectations of future lower interest rates. The current consensus places a nearly 100% probability that the central bank will keep interest rates unchanged at its next meeting which concludes on December 13th. Moreover, market prognosticators believe there is a greater than 50% chance of a rate cut at the Federal Open Market Committee’s March 2024 meeting. However, this speculation runs contrary to some recent statements made by Fed officials, particularly those of Chairman Jerome Powell, which have suggested that further rate increases have not been ruled out.
Looking at the economic calendar for this week, the Institute for Supply Management (ISM) is scheduled to release its Non-Manufacturing (i.e. services) U.S. Purchasing Managers’ Index (PMI) for November this morning. Expectations are calling for the index to come in around 52.0%, up slightly from October’s reading of 51.8%. (Percentages above 50 indicate expansion, while those below 50 represent contraction.) Should this be the case, it would mark the 10th consecutive month of increased activity. Also this morning, the Bureau of Labor Statistics will come out with its JOLTS (Job Openings and Labor Turnover Survey) report for last month. Consensus is calling for a dip to around 9.35 million open jobs, compared to the 9.553 registered in September.
Rounding out the rest of the week, the Department of Labor is due to release its data on initial jobless claims on Thursday, with a small uptick to 223,000 expected, versus 218,000 reported the week before. More details on the state of the labor market will be provided on Friday when the Bureau of Labor Statistics releases its nonfarm payrolls report for November. Wall Street is calling for an uptick to 180,000, compared to the 150,000 jobs added in October. Meanwhile, the unemployment rate is expected to remain steady at 3.9%.
Summing up Monday’s market moves, the Dow Jones Industrials were down 41 points, or 0.1%, the S&P 500 shed 24 points (0.5%), and the tech-focused NASDAQ took the biggest hit, losing 119 points (0.8%). – 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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