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  • Writer's pictureJade Rossback

Relatively Quiet and Free from Consequential Economic Reports Before Christmas?

Updated: Dec 26, 2023

Economic & Earnings Commentary

One might think that the week ahead of Christmas — which is one week from today — would be relatively quiet and free from consequential economic reports. But this year, it’s decidedly not true: key November housing data, a fresh Personal Consumption Expenditure (PCE) summary and the first companies of unofficial Q4 earnings season (which ramps up notably mid-January) all greet us at some point as the week moves along.

Pre-market futures are quietly picking up where they left off last week, with the Dow up another +66 points, the S&P 500 +12 and the Nasdaq +25 points at this hour. It’s been an undeniably great year, especially with this late-year rally pulling the Dow and small-cap Russell 2000 along, and we now see the Dow hinting toward 38K, the S&P north of 4700 and the Nasdaq now with 17K in its sights.

A new Homebuilder Confidence survey comes out after today’s open, with expectations to bounce up slightly in November from a cycle low 34 the previous month. Cycle high in July of this year was 56; prior to that, we were above 80 at various times between 2020 and very early 2022. For last month, analysts are looking for 36 — not great, but off the lowest levels since December of last year.

Existing and New Home Sales reports will also be out this week, along with another Weekly Jobless Claims set of figures, of course. But November PCE — the Fed’s preferred inflation metric — on Friday is expected to come in flat month over month, and +3.0% on the headline year-over-year rate. Core PCE year over year is estimated to cool 30 basis points (bps) from +3.5% in October to +3.2% last month. Though still a ways off optimum 2% inflation, this would be the lowest core CPI year over year since April 2021.

On the earnings front, this week, FedEx (FDX) kicks off proceedings tomorrow for its fiscal Q2 (calendar Q4) earnings report, which expected to see slightly negative revenue growth but +30% on earnings per share (EPS). The global delivery and logistics leader has beaten earnings estimates in each of the past four quarters, with a trailing four-quarter average of +17%. Wednesday brings us General Mills (GIS) earnings results, and Thursday has Nike (NKE), CarMax (KMX), Carnival Cruise Lines (CCL) and Paychex (PAYX).

Elsewhere, we’ll keep our eye on other moving numbers that may hold some sway regarding market sentiment: 10-year bond yields remain sub-4% at 3.924% (well off the nearly 5% we saw back in mid-October, when everyone — including the Fed — still saw at least one more rate hike coming in 2023) and the 2-year is at 4.423%. Spot oil prices remain sub-$80 per barrel: the WTI is $73/bbl right now and Brent is $78.

Market News

Wall Street ended mixed on Friday to close out the week. Markets pared some of the gains made in the week on important Fed officials turning hawkish. Two of the three major stock indexes ended in the green while one remained flat.

How Did the Benchmarks Perform?

The Dow Jones Industrial Average (DJI) rose 0.2%, or 56.81 points, to close at 37,305.16. Twenty-one components of the 30-stock index ended in positive territory, while nine ended in negative.

The tech-heavy Nasdaq Composite gained 0.4%, or 52.36 points, to close at 14,813.92.

The S&P 500 remained virtually flat at 4,719.19. Eight out of the 11 broad sectors of the benchmark index closed in the red. The Utilities Select Sector SPDR (XLU), the Real Estate Select Sector SPDR (XLRE) and the Health Care Select Sector SPDR (XLV) retracted 1.7%, 1.2% and 0.9%, respectively, while the Technology Select Sector SPDR (XLK) advanced 0.5%.

The fear-gauge CBOE Volatility Index (VIX) decreased 1.6% to 12.28. A total of 19.8 billion shares were traded on Friday, higher than the last 20-session average of 11.8 billion. Decliners outnumbered advancers on the NYSE by a 2.00-to-1 ratio. On the Nasdaq, declining issues led advancing ones by 1.54-to-1.

Comments From Fed Officials Dampen Mood

The recent euphoria witnessed in Wall Street on the back of Jerome Powell’s assertion that the Fed might have reached the end of its rate hike cycle and is looking to cut rates soon got dampened a bit on Friday. One of the top policymakers from the central bank turned hawkish, and the markets pared some of the stellar gains made through the week.

"We aren't really talking about rate cuts right now," New York Fed president John Williams said in an interview on Friday. On the question of rate cuts, he said, "I just think it's just premature to be even thinking about that." The central bank continues to mull whether monetary policy is in the right place to help guide inflation back to its 2% target.

Atlanta Fed president Raphael Bostic also, in an interview given on Friday, suggested that he does not expect a rate cut before third-quarter 2024. This also had an adverse impact on the mood of market participants, as the general consensus is for a rate cut in the first quarter.

Consequently, shares of American Electric Power Company, Inc. (AEP) and Exelon Corporation (EXC) declined 1.3% and 6.4%, respectively.

Weekly Roundup

All of the three widely followed indexes closed a seventh straight winning week. The Dow Jones Industrial Average, the tech-heavy Nasdaq Composite and the S&P 500 jumped 2.9%, 2.8% and 2.5%, respectively. During the week, investor mood remained upbeat upon the conclusion of the Fed December meeting, where it signaled that interest rates may have already peaked and rate cuts were to be expected in 2024. Inflation indicators also suggested that the tight monetary policy employed by the central bank was taking effect, with headline PPI remaining flat and CPI coming in way below expectations. Treasury yields fell, hovering around the 4% mark, down from their October peak of above 5%.

Economic Data

Per the Federal Reserve, capacity utilization for November came in at 78.8, increasing slightly from the revised figure of 78.7 for October. The October number had been previously reported to be at 78.9.

Industrial production for November increased 0.2% against the revised -0.9% for October. The October number was earlier reported to be at -0.6%.

*Content provided by Zacks Investment Research. An American company dedicated to the production of independent research and investment-related content. It was founded in 1978 by Len Zacks, based on his insights while pursuing his Ph.D. at MIT.

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