Easing Inflation and Declining Bond Yields Send Stocks Higher:
Last week, a strong rally on Friday propelled stocks to a solid overall performance, effectively overshadowing mixed results earlier in the week. Following a strong November, investor optimism remains high as declining bond yields and key economic indicators show that inflation appears may finally be softening.
Over the last month, The Dow Jones Industrial Average returned 6.69%, while the S&P 500 returned 5.41%. The Nasdaq Composite Index returned 5.92%.
Source: Charles Schwab & Co, Inc.
Stocks Move Higher
The stock market digested November’s robust gains for much of last week but rallied strongly amid falling bond yields on the last trading day.
Market sentiment remained positive as the Fed’s preferred measure of inflation showed ongoing signs of softening inflation pressures, boosting hopes that the Fed may be able to end its rate hikes and consider rate cuts sometime next year. Investors also welcomed news of solid spending in early holiday sales reports.
The declines in bond yields reflect that the financial markets are positioning for a rate cut soon, even brushing off Fed Chair Powell’s Friday comments suggesting it was premature to consider monetary loosening.
The Personal Consumption Expenditures Price index (PCE)–the Fed’s preferred measure of inflation–was released last week, showing core PCE (excludes energy and food) rose 0.2% in October and 3.5% from a year ago. Both were lower than September’s readings of 0.3% and 3.7%, respectively. Perhaps most notably, core prices rose at a 2.5% annualized rate over the last six months, close to the Fed’s target rate and a big improvement over the previous six-month annualized rate of 4.5% ending April.1
The report also reflected a slowdown in consumer spending, as October’s 0.2% increase was lower than September’s 0.7% gain, a possible indication of the impact of the resumption of student loan repayments, higher prices, and shrinking savings.2
This Week: Key Economic Data
Source: Bloomberg Finance L.P.
This Week: Companies Reporting Earnings
At Concord Asset Management, we design portfolios for the long run, with the ability to navigate various market cycles. However, you can have confidence that we are monitoring these market-moving events, and we will make reasonable, tactical adjustments as necessary.
Chief Investment Officer
Concord Asset Management
Footnotes and Sources
1The Wall Street Journal, November 30, 2023
2The Wall Street Journal, November 30, 2023
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