What do you know this week?

This is the takeaway from today’s morning briefing, and what you can do subscription Received in your inbox every morning with:

Morning brief picture

A new reading on the Fed’s preferred inflation gauge will put the market’s rally to the test next week.

The personal consumption expenditures (PCE) price index for November is due on Friday as economists expect inflation to continue to decline. The economic calendar will also contain updates on housing, consumer confidence and the final reading of economic growth in the third quarter.

On the institutional side, Nike (NKE), FedEx (FDX), General Mills (GIS), Micron (MU), and Carnival (CCL) are scheduled to report their quarterly results.

The S&P 500 will open Monday after closing higher for seven straight weeks, its longest stretch since 2017. Stocks rose after the Federal Reserve’s latest meeting left investors anticipating more interest rate cuts next year than previously expected.

Last week saw the Nasdaq Composite (^IXIC), S&P 500 (^GSPC), and Dow Jones Industrial Average (^DJI) rise above 2% while the Dow broke 37,000 points for the first time ever.

Inflation in focus

Key to the Fed’s call for further interest rate cuts in 2024 is the central bank’s belief that inflation is falling faster to its 2% target than previously hoped. In the Fed’s latest Summary of Economic Outlook (SEP), the central bank revealed that it now expects core personal consumption expenditures, which exclude volatile food and energy categories, to fall to 2.4% next year. It had previously expected that inflation would close in 2024 at 2.6%.

“Inflation continues to decline,” Federal Reserve Chairman Jerome Powell said. During a press conference On December 13th. “The labor market continues to return to balance. So far so good, although we kind of assume it’s going to get tougher from here, but it hasn’t so far.”

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Powell noted that inflation remains above the Fed’s 2% target and the extent to which inflation remains above that target will be revealed on Friday with the latest personal consumption expenditures reading.

Economists expect ‘underlying’ annual growth in personal consumption expenditures – which excludes the volatile categories of food and energy By 3.4% in November. Over the previous month, most economists expect the “core” PCE rate to reach 0.2%.

“November PCE inflation should show a marked decline,” Michael Gapen, a US economist at Bank of America, wrote in a research note on Friday. “We expect only a 0.1% rise in fundamentals.”

“Overall, this should put another arrow in the Fed’s quiver that inflation pressures are moderating,” he added.

Stocks to highlight the consumer

In company news, quarterly reports from Nike, FedEx, General Mills and Carnival will provide a look at the state of consumer spending, which many see will slow through 2024.

Nike and FedEx specifically will provide investors with an early look at holiday shopping demand as their reported quarters ended on November 30 and their guidance for the current quarter will reflect the full holiday season.

“We believe the U.S. wholesale space remains under pressure,” UBS analyst Jay Saul wrote in a research note reviewing Nike’s earnings. “Inventories are still high and consumers are becoming more price sensitive. The incremental learning compared to 90 days ago is that retailers are taking longer than expected to clear inventory.”

He continued: “We believe difficult macro trends will continue as inflation continues to negatively impact consumers, pandemic-era savings are depleted, and rising interest rates weigh on consumer spending.”

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Indices and ETFs to watch

Overall, the stock market rise will also be in focus. The S&P 500 is within striking distance of an all-time high after the Dow Jones recently set a new record.

The market’s shift into pricing in more interest rate cuts in 2024 sent interest rate-sensitive sectors higher over the past week.

The real estate sector led the market movement, rising almost 5% over the week. The Russell 2000 (^RUT), which reversed all of its post-pandemic gains earlier this year on fears of higher interest rates, was also up nearly 5% while the S&P Regional Banking Index (KRE) was up nearly 8%.

For some, this is crucial for stocks to build a sustainable rally as many Wall Street strategists have called for breadth amid a bull market that has been largely driven by Magnificent Seven shares.

Michael Kantrowitz, chief investment strategist at Piper Sandler, noted that the move higher in the Russell 2000 is a sign that “the Fed’s pivotal relief hike is in full effect,” and it may have more room to move forward.

“The Fed’s pivot has clear bullish historical precedence,” Kantrowitz wrote in a research note Thursday. “Therefore, we believe that market breadth will continue to improve.”

Kantrowitz sees stocks drifting higher as bond yields fall. The main headwind to this will be cracks in the labor market. Kantrowitz is monitoring initial unemployment claims, which recently reached 202,000. It is believed that claims should remain below about 275,000 to reflect the economy in healthy condition.

FILE - A sign is seen at the intersection of Broadwall Street outside the New York Stock Exchange, Monday, Dec. 11, 2023, in New York.  A strong rally on Wall Street sent the Dow Jones Industrial Average to a record high after the Federal Reserve signaled that the interest rate cuts investors have been craving could come next year.  (AP Photo/Yuki Iwamura, File)

Weekly calendar

Monday

  • Economic data: Fed services business activity in New York, December (previously -11.9)

  • Profits: There are no noticeable profits.

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Tuesday

  • Economic data: Housing Starts, November (1.36 million expected, 1.37 million previously); Building Permits, November (1.47 million expected, 1.49 million prior)

  • ProfitsAccenture (ACN), FedEx (FDX)

Wednesday

  • Economic data: MBA Mortgage Applications, week ending December 15 (previously +7.4%); Existing Home Sales, November (3.77 million expected, 3.79 previously); Consumer Confidence Council Conference, December (104 expected, 102 previously);

  • Profits: BlackBerry (BB), General Mills (GIS), Micron (MU)

Thursday

  • Economic data: Initial jobless claims, week ending December 16 (215,000 expected, 202,000 previously); Unemployment claims continue, week ending December 9 (1.88 million expected, 1.88 million previously); Q3 GDP, final estimate (+5.2% annual rate expected, +5.2% previously); Q3 personal consumption, final estimate (+3.6% y/y expected; +3.6% previously); Philadelphia Fed Business Forecast, December (-3 expected, -5.9 previously)

  • Profits: CarMax (KMX), Carnival (CCL), Nike (NKE)

Friday

  • Economic news: Personal Income, Monthly, November (+0.4% expected, +0.2% previously); Personal Spending, MoM, November (+0.3% expected, +0.2% previously); PCE Inflation, MoM, November (+0.0% expected, +0.0% previously); PCE Inflation, YoY, November (+2.8% expected, +3% previously); “Core” PCE, MoM, November (+0.2% expected, +0.2% previously); “Core” PCE, YoY, November (+3.4% expected; +3.5% previously); New Home Sales, November (annual expected 687,000, previously 679,000); New Home Sales, MoM, November (+1.1% expected, -5.6% previously); Durable Goods Orders, November (2.2% expected, -5.4% previously); University of Michigan Consumer Confidence, December Final (69.4 expected, 69.4 previously)

  • Profits: There are no noticeable profits

Josh Shafer He is a correspondent for Yahoo Finance.

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