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The Federal Reserve’s Upcoming Policy Moves Amidst Market Fluctuations
The Federal Reserve is poised to be a focal point in the coming days as Wall Street seeks to recover from a volatile week. The Dow Jones Industrial Average experienced its seventh consecutive decline on Friday, marking the longest losing streak since 2020, and ultimately falling by 1.8% over the week. Meanwhile, the S&P 500 also faced a decline of 0.6%, yet the Nasdaq managed a slight gain of 0.34%, benefiting from its significant allocation in large technology stocks.
While the week featured limited economic data, the few reports released were crucial. The consumer price index (CPI) for November, reported on Wednesday, and the producer price index (PPI) on Thursday, provided a final glimpse at U.S. inflation trends before the Fed’s important two-day policy meeting this week. The CPI, which measures consumer prices, saw an increase of 2.7% year-over-year, aligning with projections. However, the shelter index rose by 4.7% annually, indicating persistent housing inflation, causing concern among economists.
In contrast, the PPI figures exceeded expectations with a 0.4% monthly increase, above the anticipated 0.2%. Despite this, many market analysts expect the Fed to lower rates by a quarter percentage point during its meeting, adjusting the target range to between 4.25% and 4.5%. Reports of a weakening labor market lend additional credence to the Fed’s argument for a rate cut.
Market Highlights of the Past Week
Within the week’s market activity, notable highlights included strong quarterly performances from Costco and Broadcom. Costco’s robust results reinforced its premium stock valuation. Broadcom, on the other hand, showcased its positioning within the artificial intelligence sector, catapulting to a $1 trillion market capitalization after a remarkable 24.4% increase on Friday. Broadcom emerged as the top performer in the S&P 500 for the week, with a 25.2% gain, although its performance was insufficient to uplift the broader technology sector, which ended the week in negative territory.
Among the 11 sectors of the S&P 500, only communication services and consumer discretionary recorded positive performances. The communication services sector was buoyed by a nearly 9% surge in shares of Google’s parent company, Alphabet, following announcements of advancements in quantum computing. Additionally, General Motors’ decision to exit its autonomous taxi service, Cruise, benefited Alphabet-owned Waymo. Meanwhile, Tesla’s stock saw a significant 12% increase, contributing to the consumer discretionary sector’s favorable performance.
Economic Updates on the Horizon
As the week unfolds, important economic updates will be forthcoming, coinciding with comments from Fed Chair Jerome Powell following the central bank’s policy decision. Notable earnings reports will also come from companies such as homebuilder Lennar and corporate uniform supplier Cintas, which will provide further insight into the economic landscape as 2024 approaches.
This Friday, investors will focus on the release of the November personal spending and income report, containing the Fed’s preferred inflation metric, the PCE price index. Economists are predicting a 0.2% month-over-month increase and a 2.9% year-over-year gain, although the release timing means it will be available after the Fed’s meeting, leaving some uncertainty ahead of potential monetary policy shifts. Observers will keenly listen for Powell’s remarks regarding the future trajectory of monetary policy, particularly into 2025.
Key Earnings Reports
Several notable companies outside of the anticipated portfolio will be reporting this week. Lennar, in light of persistent housing inflation, may provide valuable insights into consumer behaviors amid fluctuating mortgage rates. Micron’s report will reveal chip demand trends across various tech sectors. Additionally, Cintas will provide a barometer of business performance across multiple industries, while Paychex will deliver insights into the health of the labor market, a vital component of the consumer-driven U.S. economy.
Thursday will bring additional reports from Nike and FedEx, both of which are positioned to reflect the economic activity landscape through their global operations and consumer demand indicators.
Looking Ahead
The upcoming week presents critical economic indicators that will inform understanding of ongoing market trends:
- Monday, Dec. 16: No events of note
- Tuesday, Dec. 17: 8:30 a.m. ET: Retail Sales; 9:15 a.m. ET: Industrial Production & Capacity Utilization
- Wednesday, Dec. 18: 8:30 a.m. ET: Housing Starts & Building Permits; 12 p.m. ET: Investing Club’s Monthly Meeting; 2 p.m. ET: Federal Reserve rate decision
- Thursday, Dec. 19: 8:30 a.m. ET: Initial Jobless Claims; 8:30 a.m. ET: Gross Domestic Price; 10 a.m. ET: Existing Home Sales
- Friday, Dec. 20: 8:30 a.m. ET: Personal Spending & Income
Overall, this week’s events are set to shape market sentiment and provide critical insights into economic conditions as the year comes to a close.
Source
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