Stocks continued their upward trajectory in November amid speculation that the Federal Reserve would achieve a smooth economic slowdown, given the resilience of the U.S. economy and signs of cooling inflation.
The S&P 500 crossed the 4,500 mark, although the rise was more modest compared to Tuesday's significant surge, fueled by short covering and optimism that the Fed's tightening cycle had concluded. Target Corp. saw a substantial increase in its stock due to strong earnings, while Nvidia Corp. experienced a decline following a 10-day winning streak. The climb in Treasuries, which had pushed global bonds close to erasing 2023 losses, came to a pause.
Traders scrutinized economic data for insights into the Fed's future actions. October saw a slowdown in retail sales, but prior months were revised upward, indicating resilience heading into the holiday season. Unexpectedly, prices paid to U.S. producers experienced the most significant decline since April 2020.
David Russell, global head of market strategy at TradeStation, described the scenario as "more Goldilocks," where price growth moderates with strong demand still present, shaping a soft landing.
According to Callie Cox at eToro, investors should not be overly concerned about the overall retail sales decline, as oil prices heavily influence the figures, and gas costs were notably lower last month. Cox emphasized that as long as recession signals are absent, the bull market persists, with strong spending and controlled inflation.
Recent economic reports suggest subdued inflationary pressures and robust consumer spending, according to Will Compernolle at FHN Financial. He believes the solid economic growth allows the Fed to comfortably leave rates unchanged at its upcoming meeting.
Markets are pricing in almost 50 basis points of rate cuts by July, nearly double the expectations at the end of October.
Chris Zaccarelli at Independent Advisor Alliance expressed confidence in continued equity growth, adding that the strong consumer base suggests corporate profits will also grow, fueling a year-end rally.
Jim Baird at Plante Moran Financial Advisors noted that recent data on consumer and producer prices confirm the ongoing disinflationary cycle, while jobs data indicates slower job growth without a surge in layoffs. Baird acknowledged recession risks but sees a potential path to a soft landing.
Goldman Sachs' David Kostin provided a bullish forecast, anticipating a favorable mix of factors for U.S. stocks, including the avoidance of a recession, rising earnings, and stable valuations.
In the bond market, concerns about leaning too heavily toward rate cuts next year were raised by Daniel Ivascyn, CIO at Pacific Investment Management Co. He emphasized that the inflation problem is not yet solved, predicting a potentially turbulent journey to see inflation moderate in line with the Fed's goal.
T. Rowe Price dismissed bets on Fed rate cuts next year as exaggerated, expecting U.S. growth and higher interest rates relative to other major economies to support the dollar. Fidelity International warned that higher-for-longer U.S. interest rates could lead the economy into a downturn, benefiting the U.S. currency. Meanwhile, Western Asset Management highlighted demand for Treasuries and the U.S. dollar's status as the world's reserve currency as factors supporting the case for U.S. exceptionalism.
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