It Was A Busy Week For The Stock Market That Left The Major Indices With Solid Gains.
The Dow Jones Industrial Average closed at a new record high on Thursday, building on that during Friday's session, while the S&P 500 closed above 4,700 at its highest level since January 2022.
Friday's close marked seven consecutive winning weeks for the major indices.
Stocks surged after the market learned that the FOMC voted unanimously to leave the target range for the fed funds rate unchanged at 5.25-5.50%. This was accompanied by an updated Summary of Economic Projections that featured an improved growth outlook for 2023, a lowered inflation outlook for 2023 and 2024, and a median estimate of three rate cuts in 2024 versus a previous estimate of two rate cuts.
Fed Chair Powell also acknowledged in his press conference that the FOMC discussed when it will become appropriate to begin dialing back its policy restraint. Notably, however, New York Fed President Williams (FOMC voter) in a CNBC interview seemingly contradicting Mr. Powell's remarks. He said that the Fed isn't really talking about rate cuts right now and that it is premature to think about the timing of rate cuts.
Atlanta Fed President Bostic (2024 FOMC voter) told Reuters, meanwhile, that he expects two rate cuts in 2024, starting in the second half of the year.
The fed funds futures market had been pricing in two rate cuts in 2024 ahead of the FOMC meeting, but it is now pricing in six (!) rate cuts for 2024 with the first cut coming in March.
Other central banks followed the Fed's lead and left their respective rates unchanged, too. The ECB left its corridor of key policy rates unchanged, as expected, along with the Bank of England, the Swiss National Bank and Hong Kong Monetary Authority. Notably, however, ECB President Lagarde and officials at other banks indicated that they are further away from rate cuts after Fed Chair Powell disclosed that the FOMC had began discussing rate cuts.
The Treasury market also had a strong rally in response to the Fed's dovish pivot. The 2-yr note yield dropped 28 basis points to 4.46% and the 10-yr note yield plunged 30 basis points to 3.93%. The 10-yr note yield falling below 4.00% acted as added support for equities this week.
Just about everything came along for the upside ride in the stock market. Only one of the S&P 500 sectors registered a loss -- communication services (-0.1%) -- while the rate-sensitive real estate sector jumped 5.3%.
Other top performing sectors included materials (+4.0%), consumer discretionary (+3.5%), and industrials (+3.6%).
Economic data was mostly consistent with the soft landing narrative. The November Consumer Price Index was mostly in-line with expectations, although core CPI was somewhat sticky, while the November Producer Price Index showed some welcome disinflation. Retail sales rebounded in November from a slump in October and weekly jobless claims are still running below recession levels.
The latter half of the week featured heavier-than-normal volume at the NYSE and Nasdaq due in part to a huge quarterly options and futures expiration on Friday. Increased activity was also related to a rebalance of the S&P 500 and Nasdaq 100.
Nasdaq Composite: +2.9% for the week / +41.5% YTD
S&P 500: +2.5% for the week / +22.9% YTD
Dow Jones Industrial Average: +2.9% for the week / +12.5% YTD
S&P Midcap 400: +4.3% for the week / +13.0% YTD
Russell 2000: +5.6% for the week / +12.7% YTD