In a week leading up to a holiday-shortened trading period that includes Thanksgiving, the stock market experienced notable gains, with the Dow Jones Industrial Average (DJI) climbing nearly 2%, while both the S&P 500 (GSPC) and the Nasdaq Composite (IXIC) saw over 1.5% increases. This rally precedes a crucial watch on economic indicators, specifically the Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) index. Further updates on third-quarter economic growth and developments in the housing market are set to capture attention.
Economic and corporate news is also set to weigh significantly on investor sentiment. Quarterly earnings reports from major players like Zoom, Dell, Best Buy, CrowdStrike, and Macy’s are expected. As a reminder, the markets will observe a pause on Thursday for Thanksgiving, followed by an early closure on Friday at 1 p.m. ET.
The continuity of inflation readings has cast doubt on the possibility of the Federal Reserve cutting interest rates in December and has raised questions regarding the extent of potential cuts in the coming year. Notably, the “core” Consumer Price Index (CPI), excluding food and gas, showed a consistent 3.3% increase for the third consecutive month in October. Additionally, the “core” Producer Price Index (PPI) registered a 3.1% rise in October, up from 2.8% the prior month, surpassing economists’ expectations of a 3% increase.
Amidst these developments, Federal Reserve governor Michelle Bowman expressed concerns regarding stagnation in progress toward the central bank’s 2% inflation objective and advised caution in cutting interest rates. Economists expect Wednesday’s Personal Consumption Expenditures (PCE) report to support these concerns, forecasting an annual “core” PCE reading of 2.8% in October, slightly higher than September’s 2.7%. The monthly “core” PCE is predicted to remain steady at 0.3%.
A note from Bank of America Securities US economist Stephen Juneau indicated that should the PCE numbers align with expectations, it may prompt the Fed to reassess its inflation and monetary policy outlook. However, Juneau still foresees a 25 basis point rate cut in December, albeit suggesting a potentially less aggressive rate-cutting cycle due to ongoing economic strength and stubborn inflation.
In conclusion, the stock market demonstrated a generally positive performance heading into the Thanksgiving holiday, with pivotal economic indicators and corporate earnings reports poised to influence investor moods. The Federal Reserve’s wary approach to interest rate reductions, given worries about halting progress in inflation reduction, remained a significant focus. Economists and market participants are set to closely monitor upcoming data releases to better understand the Fed’s potential adjustments to their policy.
