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Market Remains Resilient: S&P 500 and Nasdaq Inch Up Amid Rate Stability

By:JJ Kinahan

An interest rate cut seems nearly certain in the spring, and an investment guru passes away

  • The Fed is signaling potential rate cuts, and the markets are buoyant despite varied economic indicators and global challenges.
  • Housing prices are climbing, while limited supply constrains the market despite an uptick in consumer confidence.
  • Gold is surging to a seven-month high, and oil prices are showing modest gains ahead of an OPEC meeting.

The markets experienced modest gains yesterday, with the S&P 500 edging up by 0.1% and the Nasdaq Composite climbing 0.3%. Despite these marginal increases, both indices have recorded substantial year-to-date growth, with the S&P rising by 19% and the Nasdaq surging by 50%. Recent market improvements are attributed to diminishing concern about potential interest rate hikes and indications of a slowing, though not stagnant, economy.

Forecasts from the Chicago Mercantile Exchange (CME) indicate it is almost certain the Federal Reserve Open Market Committee (FOMC) will maintain current rates at its upcoming meeting, with a growing possibility of rate cuts in 2024. Anticipation has intensified for a potential quarter-point rate decrease as early as March, with market projections signaling a 95% probability of rates ranging between 3.75% to 5% by the end of 2024.

The bond market aligns with the notion of a concluded interest rate hike cycle, as evidenced by the 10-year note closing at 4.33% and the two-year at 4.60%. Notably, the shift in sentiment regarding future rate hikes was marked by a more dovish stance from Fed Reserve Governor Christopher Wallace. His tempered remarks prompted by declines in rates, a dip in the U.S. dollar to its lowest point since August and a surge in gold prices to a seven-month peak.

Consumer confidence rebounding

Recent economic indicators influencing market trends revealed an upturn in consumer confidence after four consecutive months of decline. Additionally, the Case-Shiller National Home Price Index reported a 3.9% year-over-year increase in housing prices for September, accompanied by a 0.7% month-over-month rise. However, the housing market is constrained by limited supply caused by higher mortgage rates, driving up prices for existing homes.

Noteworthy shifts in commodities include gold reaching a seven-month high. Crude oil prices have a slight uptick ahead of the OPEC meeting but remain below their September peak of over $90 per barrel.

In the realm of individual stocks, Goldman Sachs' decision to exit the consumer credit card business has spurred speculation about Apple seeking a new banking partner for its credit card operations. Meanwhile, General Motors announced a substantial stock repurchase totaling $10 billion, with $6.8 billion immediately retired, alongside a 33% dividend increase to $0.12 per share.

Internationally, Chinese stocks faced a downturn amid economic struggles, particularly for real estate stocks. The forthcoming release of China's purchasing managers’ index (PMI) is expected to reveal a sustained manufacturing decline.

Domestically, market activity remained relatively subdued, with expectations of continued low volume for the week. Anticipation surrounds the imminent release of the personal consumption expenditures report, a key measure of inflation favored by the Fed. The report may prompt some market activity upon its release, while heightened volume is anticipated in the upcoming weeks, coinciding with the November employment report.

A legend of finance

The financial world mourns the passing of Charlie Munger, Warren Buffett's long-standing confidant and a prominent figure at Berkshire Hathaway. Munger and Buffett's investment strategies have been revered for their success, emphasizing the importance of sticking to long-term investment plans.

In summary, market movements reflect evolving sentiment regarding interest rates, economic indicators, corporate actions and global economic shifts. Despite uncertainties and notable losses in the financial world, staying committed to sound investment strategies remains a fundamental guiding principle.

JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan 

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

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