The Dow Jones is Edging Lower as Stocks Pull Back From Their Highest Level in Almost Four Months

U.S. equities experienced a modest decline on Monday, retracing from recent highs reached in August, as investors geared up for a week packed with significant economic data.

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The Dow Jones Industrial Average (DJIA) retreated by 78 points, or 0.2%, closing at 35,312. Simultaneously, the S&P 500 (SPX) saw a decrease of 10 points, or 0.2%, ending the day at 4,549. The Nasdaq Composite (COMP) also dipped by 20 points, or 0.1%, reaching 14,230. The prior week had seen the Dow rise by 1.3%, achieving its highest close since August 7, while the S&P 500 recorded a 1% gain, marking its highest level since August 1. The Nasdaq Composite posted a 0.9% increase. Trading volumes were relatively thin due to the closure of U.S. markets on Thursday for the Thanksgiving holiday, followed by a shortened session on Friday.

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The market's cautious start was influenced by a lackluster session in Asia, where reports of China's industrial companies experiencing a mere 2.7% profit increase for the year up to October raised concerns about potential deflation in the world's second-largest economy, impacting sentiment across the region.

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Despite the initial wobbles, analysts express confidence in the positive momentum carrying into the year-end. The S&P 500 has demonstrated four consecutive weeks of gains, surging by 8.7% for the month, coinciding with a decline in benchmark bond yields from 16-year highs. This drop is driven by optimism that the Federal Reserve has concluded its interest rate hikes.

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Chris Larkin, Managing Director for Trading and Investing at E-Trade from Morgan Stanley, highlighted the market's acceptance of the notion that slowing economic data might prompt market-friendly rate cuts, even as the Fed signals otherwise. He emphasized that this week's data releases would provide traders with insights into whether the cooling trend persists.

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The upcoming week is anticipated to be pivotal, with Thursday's personal consumption expenditure report for October, the Federal Reserve's preferred inflation metric, taking center stage. This report, along with the initial revision of third-quarter gross domestic product (GDP), will likely influence short-term trends in both the bond and stock markets. Federal Reserve Chair Jerome Powell is also scheduled to address investors on Friday.

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Over the weekend, data revealing record-breaking online spending on Black Friday, reaching $9.8 billion, suggested that consumers in the U.S. continue to exhibit resilience despite a tightening monetary policy. Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank, noted that this robust consumer spending provides substantial support to the U.S. economy and bolsters the Federal Reserve's confidence in maintaining higher interest rates.

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On the economic front, U.S. new-home sales for October declined by 5.6% to a seasonally adjusted annual rate of 679,000, falling short of the forecasted rate of 725,000. Traders are also closely monitoring a significant bond issuance, with the Treasury set to auction $54 billion worth of two-year notes and $55 billion worth of five-year bonds. This auction will play a role in shaping market dynamics as investors assess demand and pricing.

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