U.S Treasuries Remain Higher After $54 Billion Sale

Stocks experienced fluctuations following a rally that propelled the market towards one of its most significant surges in the last century. Traders grappled with economic figures that fell short of expectations, while Treasuries maintained their upward trajectory after a $54 billion sale of two-year notes.

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The S&P 500 lingered near technically "overbought" levels, indicating a potential pullback or correction. The VIX, Wall Street's fear gauge, arrested its decline, having previously reached pre-pandemic levels. Sectors such as energy, industrial, and financials underperformed. Retailers displayed a mixed performance on Cyber Monday, with Amazon.com Inc. gaining over 1% while Best Buy Co. retreated. Gold surpassed $2,000, and oil experienced volatility amid eased geopolitical tensions and news of Saudi Arabia seeking OPEC+ quota cuts.

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Matt Maley, Chief Market Strategist at Miller Tabak + Co., emphasized the critical importance of the current technical backdrop in the stock market. He suggested that while this doesn't necessarily indicate an imminent market top, it could lead to a mild pullback or a sideways correction in the next week or two to alleviate the overbought condition.

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Economic data revealed a decline in U.S. sales of new houses in October, attributed to high mortgage rates. The Federal Reserve Bank of Dallas manufacturing index for November fell below expectations. Weaker data from China, where industrial profits rose at a slower pace in October, also impacted sentiment.

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Strategists express moderate optimism for stocks in 2024, but even conservative projections anticipate potential challenges due to the lagged impact of rate hikes on the economy. The preliminary average target for the S&P 500 in 2024 aligns with its current level, with the most pessimistic projection anticipating a 3.5% drop.

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Deutsche Bank Group AG strategists anticipate the S&P 500 reaching 5,100 by the end of 2024, implying a 12% gain from current levels. They cite cooling inflation and a rebound in corporate earnings as factors contributing to this outlook.

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The market has embraced the idea that slowing economic data could lead to market-friendly rate cuts, despite signals from the Fed to the contrary. Traders will closely observe upcoming data releases to assess the continuity of this cooling trend.

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Speculation that U.S. policymakers have concluded the rate-hiking cycle has fueled an 11% rally in the S&P 500 over four weeks, pushing short-term volatility expectations to levels last seen in November 2021. While some have taken the opportunity to buy protection at lower costs, concerns about the market environment becoming overly placid are increasing.

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In terms of earnings, Crowdstrike Holdings Inc. is expected to underscore the prioritization of cybersecurity in the wake of recent high-profile hacks. Salesforce Inc. and Dell Technologies Inc. may report slower sales growth, reflecting tightened overall corporate expenditure.

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The markets are currently priced for a soft landing, anticipating consumer spending to remain robust. However, investors are likely to closely scrutinize consumer spending data in the coming weeks, with reactions to it requiring cautious interpretation until the holiday season outcomes are known.

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