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Profit from the Pros By Kevin Matras Executive Vice President
Stocks Take A Breather After 4 Up Weeks In A Row
Stocks closed modestly lower yesterday to start the new week.
After 4 up weeks in a row, stocks took a breather. But if the last 4 weeks are any indication as to how long this 'breather' might last, I would say not long.
Since October 30th, the S&P, for example, has been up 16 days out of the last 20 trading days.
And with just 5 weeks left in the year, and the Q4 rally in full swing (Q4 is typically the best quarter of the year), I would expect any weakness to be short-lived.
That doesn't mean there won't be more volatility. We've got plenty of big reports coming out in the coming weeks.
One in particular is Thursday's (11/30), Personal Consumption Expenditures (PCE) index. That's the Fed's preferred inflation gauge. And it will be the last look at inflation we'll get before the next FOMC announcement on 12/13.
If the PCE index comes in lower like the recent CPI and PPI did a couple of weeks ago, that should give the Fed enough reason to pause yet again (it would be the 3rd pause in as many meetings), and possibly call it quits afterwards.
Although, I don't expect the Fed to shift their language to that of easing. In fact, last week's FOMC minutes showed that virtually nobody was interested in cutting rates anytime soon for fear that inflation would remain elevated or climb back up. That underscored what the Fed has been saying all along, which is higher for longer.
But the Fed has already said that they see interest rates falling by roughly -50 basis points in 2024. And plenty of Fed watchers are expecting -100 basis points. (UBS actually came out the other week saying they expected a -275 bps cut.)
Either way, it's looking like cuts are likely to begin sometime in 2024. But I'm not expecting anything like that this year or at their following meeting on January 30-31.
Nonetheless, it's pretty clear we are near the end of the rate hike cycle, if we haven't already hit it. And that alone is bullish.
After this week's PCE report, we'll then get the Employment Situation report next week on December 8.
The Fed has been watching both the unemployment rate and the average hourly earnings. The former as a proxy for the strength of the economy. The latter as an indicator of inflation (wage inflation).
Earlier this year, Fed Chair, Jerome Powell, remarked with seeming incredulity (given the Fed's historic rate hike cycle), that rates have risen to 5% while the unemployment rate is still so low.
So they will be watching that report closely as well. And that too comes out before the FOMC meeting on 12/13.
In the meantime, we've got other reports to get thru this week first.
Yesterday's New Home Sales report showed sales coming in at 679,000 units (annually) vs. last month's downwardly revised 719K (from 759K), and views for 725K.
And the Dallas Fed Manufacturing Survey declined to -19.9 vs. last month's -19.2, and estimates for -16.5.
Today we'll get the Case-Shiller Home Price Index, the FHFA House Price Index, the Richmond Fed Manufacturing Index, and Consumer Confidence.
Stocks have been on a tear over the last 4 weeks.
And I'm expecting that strength to continue into the end of the year.
So make sure you're taking full advantage of it.
See you tomorrow,
Executive Vice President, Zacks Investment Research
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