MarketBeat Minute

Equity markets tried to rebound from Wednesday's unexpected selloff on Thursday but failed to regain the prior days' losses. The S&P gained 1% for the day but closed well off the highs for the week. The weekly pattern suggests a rising level of fear ahead of the PCE report, due out Friday. The PCE report is expected to confirm slowing inflation but at an insufficient pace to allow the FOMC to cut interest rates soon.

The S&P 500 price action shows resistance below the all-time high, a critical hurdle for the market. Given the proper catalyst, resistance at this level could lead to range-bound trading or a sharp correction. That catalyst could come soon, given the risk of inflation accelerating. Oil markets are already stabilizing after their correction, and ocean-going freight rates are through the roof on geopolitical concerns centered on the Red Sea.

Equity markets reversed course on Wednesday, ending a steady string of advances with a 1.5% decline. The move was driven by fear the Fed would not cut rates early in 2024 but would hold off until mid-year or later. The latest CPI report showed inflation cooler than before but holding steady near double the FOMC 2.0% target, a level inconsistent with the idea of interest rate cuts. The November PCE Index is due on Friday and may confirm stabilizing inflation at a higher-than-normal rate, a scenario sure to keep the FOMC in a hawkish stance for the next few meetings.

The S&P 500 is unlikely to move higher without a significant change in the outlook. The PCE data could do it, but it may take more than one data point to sway the Fed. This means high-interest rates and their impact on housing and consumer markets will remain in place. With the outlook for S&P 500 earnings growth in a quick retreat, it is likely the market will enter another correction in the first half of 2024 and could shed 10% to 20% before it is through.

Equity markets extended their rebound another day, lifting the S&P 500 by 0.5% on Tuesday. The move was driven by intensifying hope that the FOMC would cut interest rates soon, a hope that may take the broad market index to a new high. The index is on track to hit and exceed the all-time before the end of the year and could produce a solid Santa Claus Rally next week. The caveat for investors and traders is that the FOMC may not cut rates as quickly as hoped, and data that could alter the outlook is due this week.

This week's release of November inflation data will help push the S&P into its next move, setting new all-time highs or topping out. The market expects the PCE data to show cooler inflation than last month and year and may be disappointed with the results. The CPI index showed inflation holding steady and at levels well above the Fed's target rate, which should be expected from the PCE. The takeaway is that inflation is cooling but still running hot compared to the 2.0% target rate and will keep the FOMC in a hawkish stance for the foreseeable future.

Equity markets advanced on Monday, setting the S&P 500 up for an 8th consecutive week of gains. The move took the index up about 0.75% at the session's high to set a new multi-year high just shy of the current all-time high. Because the market continues to show resilience and momentum in the face of high interest rates and inflation, it should be expected to continue higher. The question is what the market will do once the all-time high is reached.

The primary market-moving event for the week is the PCE price index, due on Friday. The index is expected to confirm slowing inflation by posting the lowest pace in three years since the inflation surge began. The risk now is that inflation will cool faster than expected and lead the market to another extreme, an extreme in which disinflation and deflation lead to recession. Assuming the data is as expected, Santa Claus should come to town for the traditional Santa Claus Rally.

Equity markets advanced following as-expected inflation data and a shift in Fed policy. The Fed indicated rate cuts are likely in 2024, marking the top of the rate hiking cycle. The bad news is that inflation continues to run hot so higher-than-normal interest rates will persist for some time. Even with the 75 basis points of cuts indicated, the market will end the year with rates at 4.5% or higher and double the rate going into the COVID-19 pandemic.

The S&P 500 is moving higher, and a Santa Claus Rally is likely; this week's PCE price index is a likely catalyst for the bulls. The risk is that markets remain below critical resistance at the all-time high which might cap gains for this year and next. However, if the S&P 500 can move above the all-time and sustain it through January, the odds are high that the market will continue to rally in 2024.

Equity markets were relatively unchanged on Thursday as traders digested the previous day's news. The shift in FOMC policy is promising but may not be the great news equity markets seek. While the Fed has signaled the peak of interest rates and oncoming cuts, the news is already spurring demand for homes and energy, raising the possibility inflation will accelerate again. The rate on the 10-year treasury fell to the lowest level since July during the session, indicating a significant decline in mortgage rates, while the price of oil surged more than 3.5% at the session's peak on demand hope.

The S&P 500 is still in rally mode and will likely end the year higher than it is now. The caution for traders is that the index remains below the all-time high and may be unable to cross the threshold to a new all-time high without another catalyst to drive it. The next significant catalyst is the PCE price index due on December 22nd, just in time to usher in the Santa Claus Rally if it confirms cooling inflation.

Equity markets cheered the FOMC's latest policy shift but should not be sanguine. The Fed's shift is likely short-lived, given the impact of the news on oil and equity markets. The Fed signaled at least three quarter-point interest rate cuts in 2024, clearing the runway for oil and risk-on asset demand. In this environment, inflation could easily accelerate, leading the FOMC to revert to its tighter stance.

The S&P 500 gained more than 1.25% at the height of the session as investors loaded up on deep-value stocks with high yields and a significant chance of outperforming bonds as interest rates fall. Capital invested in such names will continue to pay the same 4% to 6% yield as bonds indefinitely, with the added bonus of capital appreciation.

The bad news is that the technical outlook for the S&P 500 continues to deteriorate. The market moved higher with a solid gain but indicators such as MACD and stochastic are overbought and diverging from the action suggesting growing weakness as the rally grinds higher.

Equity markets continue to diverge from oil prices, with the S&P 500 moving up to set another new high for the year and oil prices falling to the lowest in months. The moves were driven by an as-expected CPI report, which has equity traders hoping for the first interest rate cuts to come soon and oil markets scared higher-for-longer will impact demand and lead to recession. The takeaway is that enough uncertainty remains for either outcome to be accurate; the question now is which market has it right and what the truth will mean for the economy and stocks when it becomes known.

The CPI data was as expected and confirms cooler inflation, but inflation remains hot and double the Fed's target at the core level. The data suggests inflation will continue to trend lower and lead to the coveted soft landing, but there is a risk that the FOMC will act too soon. Letting the market think that rate cuts are indeed on the way would be a catalyst to drive demand, keep inflation running hot and keep interest rates higher for longer than the market is pricing. With OPEC+ trying hard to keep oil prices higher, it won't take much to get that market into gear and underpin another surge in prices.

Equity markets advanced on Tuesday, driven by hope for cooling inflation and news from the retail sector. Private equity firms have made a joint offer to take mall-based Macy's private. The deal alleges the stock is deeply undervalued, highlighting value across the industry. Names like Kohl's and Abercrombie & Fitch also advanced on the news gaining mid to high-single digits for the day.

Today's market-moving event will be the CPI index. The index is expected to reveal that core inflation is holding steady compared to the previous month, keeping the FOMC in wait-and-see mode. The risk for traders is hotter or cooler than expected data, with the FOMC meeting set for Wednesday. The committee isn't likely to alter its policy but could begin to signal the next policy shift, which would be a bullish catalyst for the market. The S&P 500 advanced 0.4% for the session setting a new high for the year; the index is still below significant resistance targets at the current all-time high.

Equity markets advanced in the preceding week but may not get much higher. The S&P 500 is facing stiff resistance near 4,610, and multiple catalysts due this week could dampen appetite for stocks. Among them are the CPI inflation data, the FOMC policy decision and the November retail sales. Because inflation is expected to run hot again, the FOMC is unlikely to alter its stance on interest rates. The retail sales figure may also be disappointing, given the impact on spending that higher prices and interest rates have.

The next move for the S&P will be telling. If the market manages to move up to a new high this week, the odds of it setting a new all-time high are near certain. If not, the market will remain range-bound for the foreseeable future and a Santa Claus Rally is unlikely. In that scenario, a move to retest support near 4,550 is the least investors should worry about because a much deeper correction could be coming.