Stocks extend bull run after soft landing Narrative: Markets are closing in

By | December 23, 2023

(Bloomberg) — Financial assets from stocks to bonds had another winning week, as data readouts only reinforced Wall Street’s conviction in early and deep rate cuts next year.

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After a choppy session of low volumes ahead of the Christmas holidays, the S&P 500 posted an eight-week winning streak – the longest in more than five years – as price pressures in the US eased. The Nasdaq 100 and a global stock index posted similarly long runs — for the tech-heavy Nasdaq, it was the longest since July 2021. U.S. bonds posted gains for a fourth straight week — their best run since March.

“The soft landing story is entirely decisive: the economy remains strong while inflation continues to decline,” wrote Louis Navellier of Navellier & Associates. The seasoned growth investor expects the year to end on a high: “the only ones with chunks of coal in their inventory this season are the bears.”

The S&P 500 rose just under 0.2% on Friday after a slump in Apple Inc. shares. weighed on the stock meters. The iPhone maker has added nearly $1 trillion in market value this year. Nike Inc. was also a drag, falling 12% on Friday after the sportswear maker announced weaker sales prospects and a cost-cutting plan.

The Nasdaq rose 0.1% after setting record highs earlier this week. Things took a dramatic turn on Wednesday when a late swoon was attributed to so-called zero-day, or ODTE, options.

The Supreme Court’s refusal to advance a decision on former President Donald Trump’s immunity from prosecution may also have briefly fueled market volatility on Friday.

Some on Wall Street are positioning themselves for further stock gains as the session kicked off the “Santa Claus rally” – a seasonal trend in which stocks tend to rise in the first few days of the new year.

“Since 1928, the market has risen an average of 1.7% between the last five days of December and the first two days of the new year, with a positivity rate of 79%,” wrote Craig Johnson, Piper Sandler’s chief market technician.

Such progress would put the gauge back within record high range. He expects any pullbacks in the S&P 500 to be shallow and the index to remain above early December highs.

Stocks were initially supported by data on Friday showing that the Federal Reserve’s favorite underlying inflation measure barely rose in November.

That helped boost investor expectations for earlier and deeper rate cuts next year, despite reluctance from several Fed policymakers this week. Swap traders expect rates to be cut by more than 150 basis points in 2024, double the Fed’s forecast.

Read more: Fed’s favorite inflation gauges are cool, reinforcing rate cut

Global bonds were poised for another win as of Thursday, data compiled by Bloomberg showed. Treasury bonds were mixed in Friday trading, with the yield on the U.S. 10-year Treasury note hovering around 3.9%.

“We will argue that the market had a downside surprise that translated into a somewhat counterintuitive price reaction,” Ben Jeffery of BMO Capital Markets wrote after Friday’s PCE data. “We expect the proximity of the early close and the long weekend to herald a long winter nap for Treasuries.”

Additional reports Friday showed consumers were also increasingly convinced that inflation in the world’s largest economy was on the right track. At the same time, new home sales figures in the US fell unexpectedly, although this could only be a temporary setback to an expected recovery in the housing market.

The dollar held steady in a weekly rout that saw it trading near a five-month low against its Group of 10 rivals. In the commodities sector, oil prices posted their biggest weekly gain since October as shippers took long detours to combat militant to avoid attacks in the Red Sea.

Some of the key moves in Friday’s markets:

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  • The S&P 500 rose 0.2% as of 4 p.m. New York time

  • The Nasdaq 100 rose 0.1%

  • The Dow Jones Industrial Average was little changed

  • The MSCI World index rose 0.2%

Currencies

  • The Bloomberg Dollar Spot Index was little changed

  • The euro was little changed at $1.1012

  • The British pound rose 0.1% to $1.2703

  • The Japanese yen fell 0.2% to 142.47 per dollar

Cryptocurrencies

  • Bitcoin fell 0.7% to $43,683.67

  • Ether rose 2.9% to $2,314.78

Bonds

  • The yield on 10-year government bonds was little changed at 3.89%

  • The German ten-year yield rose by one basis point to 1.98%

  • The British ten-year yield fell by two basis points to 3.50%

Raw materials

  • West Texas Intermediate crude fell 0.4% to $73.58 a barrel

  • Spot gold rose 0.4% to $2,053.32 an ounce

This story was produced with the help of Bloomberg Automation.

–With help from Vildana Hajric, Sujata Rao, Carter Johnson, and Liz Capo McCormick.

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