Strong demand was seen in a $55 billion auction of five-year bonds, which came after a lacklustre $54 billion sale of two-year notes. The benchmark 10-year yield fell to around 4.4%. Following a run that drove the market towards one of the worst meltdowns in the previous century and had the S&P 500 close to technically “overbought” levels, stocks faltered. Financial and industrial equities did not do well. Shops experienced a little increase as Cyber Monday got underway.
After spending a significant portion of 2023 underwater, the largest bond market in the world has recovered and is on track to have its best month since March. The Bloomberg US Treasury Index recently turned to a positive return for the year after a surge that sent rates down from their highest point in almost a decade was sparked by signals of falling inflation and modest jobs growth.
“Despite the Fed’s persistent signals to the contrary, the market seems to have accepted the notion that weakening economic data will expedite the introduction of market-friendly rate cuts,” stated Chris Larkin of Morgan Stanley at E*Trade. “Traders will have a lot of opportunities this week to assess whether that cooling trend is sustained.”
This week’s economic data, which includes the Fed’s favoured gauge of underlying inflation, will be eagerly watched by traders. October saw a decline in US new home sales following a negative revision to September due to demand being affected by decades-high mortgage rates. November’s Fed Bank of Dallas manufacturing index showed worse than anticipated results.
This month’s S&P 500 gain was driven by bets that policymakers were done with raising interest rates, which helped to lower short-term volatility expectations. Although some took advantage of the low-cost protection options available, this has not been the norm, and there are increasing complaints that the market is becoming too calm.
“The current technical environment in the stock market is extremely significant,” stated Matt Maley, Miller Tabak + Co.’s chief market analyst. This does not imply that the stock market is about to reach a significant peak. It may just indicate that, in order to address this overbought situation, there will be a slight retreat or possibly a “sideways” correction throughout the course of the next week or two.
According to Mark Hackett of Nationwide, investors should be cautiously hopeful since volatility has decreased, the bond and equities markets have stabilised, and the dollar has dramatically declined.
Since there aren’t many signs that may significantly alter the market’s trajectory at this stage in the year, the present, favourable market trend is often how the market ends the year, according to Hackett. “However, for this to be true, the Fed must adopt a ‘goldilocks’ approach to policy—one that is neither too strong nor too weak.”
In the upcoming month, equities are predicted by over 60% of participants in the most recent MLIV Pulse poll to yield higher returns than bonds. Since the survey’s initial inquiry on the two assets in August 2022, this represents the highest degree of enthusiasm over stocks.
Binky Chadha and other strategists at Deutsche Bank Group AG predict that the benchmark will reach 5,100 by the end of 2024, representing gains of around 12% from current levels, against the background of declining inflation and rising corporate profits.
The S&P 500 is predicted by strategists at Bank of America Corp. and BMO Capital Markets to rise once again in 2024, surpassing the record high set in early 2022. Even while they fall short of the previous peak, less bullish forecasts from Societe Generale and Goldman Sachs Group Inc. nonetheless indicate that share prices would gradually rise by the end of 2024.
Markets are valued for a soft landing, which means that consumer spending will continue, according to UBS Global Wealth Management’s Jason Draho. We believe that point of view will eventually be supported. Investors should be prepared for a few weeks of consumer spending data obsession, so any market reaction to it should be interpreted cautiously until we have more information about the outcome of the holiday season.
After recent high-profile corporate hacks, Crowdstrike Holdings Inc. will highlight how businesses are prioritising cybersecurity in its earnings report. This week’s earnings reports from Salesforce Inc. and Dell Technologies Inc. are anticipated to show slower sales growth as overall corporate expenditure tightens.