Everyone wanted to know last week: Can stocks hold their gains after the best week of 2023 for the S&P 500? They sure could, as major U.S. equity indices finished the week moderately in the green.
Federal Reserve: Dovish or Hawkish?
Is the Federal Reserve (Fed) done raising rates? The collective market certainly got that indication during Federal Reserve Chair Jerome Powell’s commentary after the November Fed meeting.
But fast forward a week and a half or so, and the Fed seemed to put somewhat of a damper on expectations.
“The Federal Open Market Committee is committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2 percent over time; we are not confident that we have achieved such a stance,” said Powell at the International Monetary Fund (IMF) annual research conference.
Powell sure didn’t sound very confident (his words, not mine)! However, it’s worth keeping in mind that he can’t just broadcast a message of inflation suddenly being under control and that rate hikes are complete. Do you remember when he said inflation was “transitory” when the cycle began? Well, he isn’t going to make that mistake again!
Major U.S. stock indices fell on Powell’s commentary last Thursday, while Treasury yields rose. The initial response on Thursday was quickly reversed by a strong day on Friday for major U.S. stock indexes, as the Dow, S&P 500, and Nasdaq 100 cemented a second consecutive week of gains.
Inflation Data on Tap
It’s time for the monthly check-in on inflation via the Consumer Price Index (CPI) on Tuesday and wholesale pricing via the Producer Price Index (PPI) on Wednesday.
Markets have gotten accustomed to the last two CPI prints coming in at a 3.7% year-over-year gain. For October, Factset estimates are for a 3.3% rise year-over-year, which would be a decline from the last two readings.
Given the recent Fed commentary, the market may want to see some more evidence of inflation getting under control before continuing with its celebration.
Just when market sentiment was super bearish towards the end of October, November started with a bang for the bulls, and the momentum continued last week.
Since 1950, November has typically been the best month for stocks on average. The seasonal stock market strength often continues into December, giving way to the Santa Claus Rally.
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