Sean Conlon and Pia Singh of CNBC report the S&P 500 closes higher, notching four-day win streak and nearing record after light inflation reading:
The S&P 500 edged higher on Friday, securing its fourth straight winning day, as
traders digested inflation data that could provide further incentive for
the Federal Reserve to lower interest rates next week
The broad
market index closed 0.19% higher at 6,870.40, putting the index about
0.7% off its intraday record. Friday also marked its ninth positive
session in 10. The Nasdaq Composite increased 0.31% to settle at 23,578.13, while the Dow Jones Industrial Average climbed 104.05 points, or 0.22%, to end the day at 47,954.99.
The
market sorted through a fresh slate of economic releases Friday. The
Commerce Department said that the core personal consumption expenditures
price index for September – which was delayed due to the record-setting
U.S. government shutdown – showed an annual rate of 2.8%,
lower than the 2.9% Dow Jones estimate. Core PCE’s 0.2% rise on the
month was in line with expectations, as were the monthly and annual
inflation readings for headline PCE.
Also on Friday, the
University of Michigan’s consumer survey, a report that provides a
glimpse at sentiment as well as the view on inflation over the near and
longer term, came in higher than expected for December.
The PCE report, which serves as the Fed’s primary inflation gauge,
gives the central bank its final inflation view before Wednesday’s
interest rate vote. With inflation being mild, jobs remains more in
focus after recent reports showed signs of weakening in the labor
market. Investors are hoping that this will influence the central bank
to lower its benchmark rate by a quarter percentage point when it
announces the decision Wednesday.
Traders are pricing in an 87% chance of a cut next Wednesday, far higher than just a couple weeks ago, according to the CME FedWatch tool.
The key fed funds futures rate is currently targeted between 3.75%-4%,
trading near the high end of that range amid ongoing pressures in
short-term funding markets.
“I think it really just solidifies
what the market’s already been pricing in, which is almost certainty of a
cut for next week,” David Krakauer, vice president of portfolio
management at Mercer Advisors, told CNBC. “If inflation does continue to
stay somewhat relatively tame and [is] potentially decreasing, then
what’s the outlook for more rate cuts into early next year?”
With
expectations running high for a rate cut, Krakauer doesn’t necessarily
believe that it will serve as a catalyst for stocks to move higher as
the new year approaches. That said, he still thinks the market is in a
healthy position for some upside, at least enough to reach new highs on
the S&P 500.
“It may be a steady move, it may be a choppy
move, but I certainly see the path for equities forward as being very
positive,” he said.
Stocks posted gains for the week. The S&P 500 finished up 0.3%
week to date, while the Nasdaq and 30-stock Dow have added almost 1% and
0.5%, respectively.
During Friday’s trading session, Netflix shares seesawed after initially seeing sizable losses earlier in the day following the company’s announcement that it struck a deal with Warner Bros. Discovery to buy its film and streaming assets for $72 billion — a transaction
that’s expected to close in 12 to 18 months. Netflix shares were nearly
3% lower, while shares of WBD jumped more than 6%.
The streaming giant’s stock came off its lows of the session after a senior administration official told CNBC that the Trump administration views the deal with “heavy skepticism.”
US stocks moved higher on Friday as Wall Street
digested a cooling in the Federal Reserve's preferred inflation gauge,
increasing the odds that the central bank will cut rates next week.
The S&P 500 (^GSPC) rose 0.19%, within striking distance of its first record close since October. The Nasdaq Composite (^IXIC) also gained about 0.3%, eyeing its ninth positive close in 10 sessions. The Dow Jones Industrial Average (^DJI) rose around 0.2%, following a mixed Thursday session for the gauges.
Investors continue to bet heavily on a
quarter-point interest rate cut from the central bank next Wednesday.
Traders are pricing in 87% odds of a move lower, compared with 62% a
month ago, according to CME FedWatch.
On
Friday, a delayed reading of the PCE price index showed inflation rose
about as expected in September. The "core" PCE index — the Fed's favored
price gauge — cooled slightly, rising 2.8% on an annual basis.
Meanwhile, US consumer confidence rose for the first time in five months
as respondents' inflation expectations improved.
The jobs market, meanwhile, has presented more of a mixed bag of data this week. A Challenger report on Thursday showed US companies cut 71,000 jobs last month, the worst November print since 2022. Yet new weekly jobless claims fell to their lowest since September 2022, reinforcing the picture of a labor market cooling gradually rather than rapidly.
Meanwhile, news landed that Netflix (NFLX) will buy Warner Bros. Discovery's (WBD)
studios and its streaming unit for $72 billion, following a weeks-long
bidding war. Netflix stock ticked down 3%, while WBD shares moved 6%
higher.
In earnings, Hewlett Packard Enterprise (HPE) stock rose slightly after the server maker's quarterly sales outlook missed high AI-fueled expectations.
S&P 500 hovers near record, while bitcoin has decoupled from stocks
S&P 500 (^GSPC) was a stone's throw away from reaching a new high on Friday, while bitcoin (BTC-USD) tumbled below $90,000 per token.
The world's largest cryptocurrency is on pace to close out the year decoupled from stocks for the first time since 2014.
Bitcoin is down roughly 3% year-to-date compared the the S&P 500's 17% gain.
It hovers about 30% off its all-time high, north of $126,000 in October.
Alright, a strong week in stocks all based on expectations the Fed will cut 25 basis points next week.
I have no doubt the Fed will cut as employment is trending lower but given the stock market is a leading indicator and all stock indices including small caps are flirting with record highs, it's hard to envision more rate cuts in the new year.
Interestingly, Bank of America strategist Michael Hartnett is warning that a dovish Fed rate cut could imperil the rally:
“Only thing that can stop Santa Claus rally is dovish Fed cut causing a
selloff in long-end,” Hartnett wrote in a note, referring to Treasuries
with a longer maturity date.
US stocks have rallied as investors bet the central bank would reduce
rates further to shore up a softening labor market. Wagers on a
quarter-point cut at the meeting on Dec. 10 have soared to over 90% from
60% just a month prior, according to swaps markets. Traders have also
fully priced in three cuts by September 2026.
The S&P 500 is now about 0.5% away from its
October peak, and seasonal trends generally bode well for a year-end
rally. However, this time the market faces two risk events in the form
of key jobs and inflation reports due later in December after being
delayed by the government shutdown.
Hartnett
and his team also note that the US administration is likely to intervene
to stop inflation from running hot and the unemployment rate rising to
5%. They recommend positioning for that possibility by buying
“inexpensive” mid-caps into 2026. They also see the best relative upside
in sectors linked to the economic cycle, such as homebuilders,
retailers, REITs and transportation stocks.
The
strategists had reiterated a preference for international equities
through 2025, a call that proved correct as the S&P 500’s advance
trailed a rally in the MSCI All-Country World ex-US index.
So, is Hartnett right, will stocks sell off if it's a dovish rate cut? I wouldn't be surprised if there's a "sell the news" initial reaction but in the weeks following the December rate cut, I expect stocks to continue grinding higher until March, with volatility of course.
The reality is with fiscal and monetary policy being accomodative, it's hard to envision stocks selling off right now as we head into the new year.
And even though US Treasuries sold off this week, I expect yields to behave as employment growth and inflation expectations remain muted. The bigger story today was in Canada:
A much bigger selloff in Canadian government bonds
Friday, sparked by stronger-than-expected employment data, was a
factor. But US yields had already risen to weekly highs.
The US 10- and 30-year yields climbed more than 12 basis points since Nov. 28, with the 10-year closing at 4.14%.
The
move held after the delayed release of September personal income and
spending data — which includes the inflation gauge the Fed aims to keep
around 2% — showed that it accelerated to 2.8%, as economists estimated.
Several Fed policymakers have said the inflation trend should forestall
rate cuts.
I know a really good Canadian fixed income trader who got dinged today but I agree with him, employment trends in Canada are not strong, the data was stronger than expected because of part-time workers and I'd remain long Canadian bonds here/ short the loonie.
What else? The big news today was Netflix (NFLX) will buy Warner Bros. Discovery's (WBD)
studios and its streaming unit for $72 billion, following a weeks-long
bidding war. Netflix stock lost 3% today, while WBD shares gained 6%.
Is Netflix a buy here? I have no idea what will happen with this acquisition as it will face political and regulatory scrutiny but it's a good time to initiate a position in Netflix but don't expect it to pop back up to a new high any time soon (can go lower before it stabilizes):
With or without Warner Bros. Discovery, Netflix will remain a global powerhouse and a defensive tech stock that does well even in a downturn (the last hing people cut in desperation in their Netflix).
But the stock moves violently to the downside sometimes like it did back in 2022 so you need to remain alert and humble even if I think a nice buying opportunity is emerging here.
What else? On Wednesday Oracle reports and we shall see the post-earnings reaction as the stock has sold off recently quite a bit on debt concerns:
It could pop back over $250 or drop back to retest its recent low of $185, nobody really knows, but sentiment is so bearish on this stock that I wouldn't be surprised if it reaccelerates up if earnings are good.
Either way, it's a leader in ts field and just like Netflix, you need to see these selloffs as an opportunity to add or initiate a position (imho).
Of course, this week was all about banks (US and Canadian) with a lot of them making new highs.
I invite you to carefully scroll down the list of stocks making a new high here (you should be doing this every single trading day to see where strength lies).
Lastly, I know there is a lot of angst on the spillover from surging Japanese bond yields but I agree with Dhaval Joshi of BCA Research, the idea that, past a certain point, Japanese government bond yields
could trigger a global stock-market meltdown is pretty
far-fetched:
"There isn't a critical level [for Japanese bond yields] that is going
to cause a tsunami of capital flooding back to Japan. That's not going
to happen," Joshi said.
I've seen this "yen carry trade unwind" story so many times in the past 25 years that I tend to be more skeptical about a potential global stock market rout from rising Japanese bond yields.
Alright, let me wrap this up with the best performing US large cap stocks this week:
Below, Andrew Davis, Bryn Mawr Trust Advisors SVP & Head of Macroeconomic Research, joins 'Fast Money' to talk the current state of play in teh market and how to position going into next year.
Also, Jeremy Siegel, Wharton professor emeritus and WisdomTree chief economist, joins 'Closing Bell' to discuss Siegel's thoughts on equity markets, if investors are afraid of missing out on equity markets growth and much more.
Lastly, Bloomberg's Asia Trade discusses how Japan's 2-year yield hit the highest level since 2008.
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