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Profit from the Pros By Kevin Matras Executive Vice President
Stocks Up For The 5th Week In A Row As Q4 Rally Continues
Stocks closed higher across the board on Friday. After the Dow made new YTD highs on Thursday, they did it again on Friday. The S&P did the same, notching a new high for 2023 as well.
All of the major indexes closed higher for the week, making it 5 weeks in a row.
It's been a blistering rally. Since late October when the indexes put in their correction low closes, the Dow has since gained 11.8%, the S&P is up by 11.6%, and the Nasdaq is up 13.6%.
With the latest reports over the last several weeks confirming inflation is on the decline, it's become clear that the Fed is likely done with their historic rate hike cycle. As it stands now, Fed Funds traders have placed a 97.2% probability that the Fed will leave interest rates unchanged when they meet next week on December 12-13. That will make it their 3rd pause in as many meetings.
While the Fed has said it's much too early to talk about cutting rates – in fact Fed Chair, Jerome Powell, on Friday reiterated that sentiment when he said it would be "premature" "to speculate on when policy might ease," they have previously estimated that rates could come down by -50 basis points next year.
Interestingly, many analysts are expecting the Fed to cut rates by -125 basis points in 2024, with some even looking for as much as a -275 basis point cut.
We will have to see what the Fed says next week.
But first, we have to get thru this week. Specifically the Employment Situation report on Friday, 12/8. The Fed watches the unemployment rate as a proxy for the economy, and average hourly earnings as a barometer for inflation (wage inflation).
It's hard to imagine a scenario where Friday's unemployment report would upend what is likely to be another pause next week. But if the job gains are unexpectedly hot, it could help shape their narrative for what comes after that.
Earlier this year, Mr. 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 all eyes will be on Friday.
In the meantime, the Q4 rally, which was a month late in getting started, has made up for lost time and soared.
With 4 more weeks left in the year, and momentum on the upswing, stocks look poised to finish 2023 on a strong note.
So make sure you're taking full advantage of it.
See you tomorrow,
Executive Vice President, Zacks Investment Research
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