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Seven in a Row
The major U.S. stock indexes climbed nearly 3%, posting their seventh positive week in a row, with the prospect of near-term interest-rate cuts providing the key catalyst. The Dow rose to a record level, eclipsing its previous high set on January 4, 2022. The S&P 500 was about 1% below its all-time high while the NASDAQ was about 8% shy of its historic peak.
The U.S. Federal Reserve kept its benchmark interest rate unchanged at a range of 5.25% to 5.50% for its third meeting in a row but indicated that it’s likely to shift soon to a more accommodative stance. Projections from most Fed members indicated the potential for three rate cuts in 2024. As recently as September, the Fed had projected one more rate hike this year followed by two cuts next year.
The shifting rate outlook sparked a price rally in the bond market, sending yields lower. The yield of the 10-year U.S. Treasury bond fell below 4.00% on Thursday for the first time since late July. The 30-year Treasury yield also dropped, remaining slightly about the 4.00% threshold on Friday.
The seven-week string of gains for the major U.S. stock indexes has pushed the NASDAQ up nearly 18% from a recent low in late October. The S&P 500 and the Dow were both up about 15%.
Small-cap stocks rallied in the wake of Wednesday’s U.S. Federal Reserve meeting, propelling a small-cap benchmark, the Russell 2000 Index, to a weekly gain of nearly 6%. Although the index lags its large-cap peers year-to-date, the Russell 2000 has surged more than 21% since a recent low on October 27.
Business survey results released on Friday pointed to the potential for an economic recession in the eurozone, as monthly readings in Germany and France indicated declines in business activity across services and manufacturing. The readings follow a report indicating that GDP across the eurozone was essentially flat in this year’s third quarter.
Entering the final two weeks of the year, Wall Street analysts expect that S&P 500 companies will generate double-digit earnings growth next year. On average, analysts are projecting a year-over-year earnings gain of 11.8%, which would exceed the average growth of 8.4% over the past 10 years, according to FactSet. For the first quarter of 2024, the projected growth rate is 6.8%.
A report scheduled to be released on Friday will be closely watched for any signs that U.S. inflation continued to moderate in November. The government will update its Personal Consumption Expenditures Price Index, the Fed’s preferred gauge for tracking inflation. The most recent report showed that core PCE inflation excluding food and energy prices rose 3.5% in October on an annual basis, down from 3.7% the previous month.
Source: John Hancock Investment Management
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