Everyone welcomes the month of November which saw interest rates, gasoline and oil prices fall and stocks overall recorded their biggest gains in a year.
The rebound after a correction that occurred at the end of July was surprising to say the least.
Standard & Poor’s 500 Index (^ IN) – Get a free report finished at its highest level of the year on December 1 after jumping 8.9% in November – its best monthly performance since July 2022. For the year, the index is up 19.7%.
The Nasdaq Composite (^COMPX) – Get a free report the 11.3% gain was also its best since July 2022. That’s up 36.7% this year.
The Dow Jones Industrial Average (^DJI) – Get a free report the gain was 8.8% and, at the end of the week, was up 9.4% for the year.
The small-cap Russell 2000 index was going nowhere when it ended at 1,637 on October 27. It is up 13.8% since then.
While we may welcome the good news, always remember that stocks rarely rise in a straight line. Oil prices can suddenly rise. Wars can break out. Recovery from a pandemic can strain all elements of business activity that keep the global economy running smoothly. And the price of silver will become even more expensive.
As a result, while investors, fund managers and analysts are mostly optimistic about December, with bond yields and oil and gas prices falling, they know that many bad things can happen.
Some challenges lie ahead immediately, including:
- What the November US jobs report will show on December 8.
- What the Federal Reserve will decide about interest rates on December 13.
Learn to love a weak jobs report
A weak jobs report would perversely benefit stocks because it would allow the Fed to leave interest rates alone. On the other hand, a strong jobs report would prompt the Fed to monitor more closely a resurgence of inflationary pressures.
The Fed’s key federal funds rate has been between 5.25% and 5.5% since July. The Fed began rapidly raising rates in early 2022 to try to stem the worst inflation since the 1980s.
The rate is what the central bank wants banks to charge their counterparts for overnight loans to meet regulatory requirements.
Okay, that sounds far-fetched, but the cost of this financing forms the basis for formulating U.S. interest rates.
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The employment report is based on data collected in the middle of each month. So there is a lag to start. One month’s data is revised twice after its initial release, as new information becomes available.
The September and October reports have already been revised downward by a total of 101,000 points from their original reports. Average monthly job gains since 2021 fell from 578,000 in 2021 to 263,000 this year,
The confirmation of this data constitutes anecdotal evidence of a certain slowdown in the economy.
Tech companies have been downsizing. Construction employment has declined because fewer homes or apartments are being built and office construction has slowed. Gasoline prices are up 16% since mid-September and almost unchanged over the year, according to AAA Daily Fuel Gauge Report.
Nonetheless, projections indicate that the November jobs report will show the national unemployment rate holding steady at 3.9% with approximately 175,000 jobs created during the month. The unemployment rate has been below 4% for almost two years.
Although the estimates will be revised later, the initial report will attract the attention of markets and the Fed, which begins its two-day meeting on December 12.
The Fed last raised rates in July and left them alone at its September and November meetings as inflationary pressures created by the pandemic recovery eased.
While the chairman of the Federal Reserve Jerome Powell clearly warned last week the time is not yet right to cut rates, he has not suggested that rates will increase. Unless there’s a problem. Which he practically has to say.
But a rate cut is coming, and markets and traders know it. THE CME FedWatch Tool the first rate cut will now take place at the Fed meeting on March 19-20, 2024.
Why buy now?
The problem investors face between now and the first dip of spring is whether it’s the right time to buy stocks aggressively. And it seemed like the question was looming late last week, particularly when it comes to tech stocks.
The Nasdaq Composite and the Nasdaq-100 (^NDX) – Get a free report the indices both seemed to falter mid-week. The Nasdaq-100 itself has hit a number of 52-week highs, but hasn’t had a feverish performance.
Apple (AAPL) – Get a free reportMicrosoft (MSFT) – Get a free report and chipmaker Nvidia (NVDA) – Get a free report and metaplatforms (META) – Get a free report all ended the week down.
The Dow and S&P 500 relative strength indexes jumped above 70, a sign that stocks in the index are becoming too expensive. The Dow Jones RSI reached an alarming level of 80 on Friday, suggesting that the average is quite close to a pullback.
At the same time, Bank of America Securities analysts also warned against too much market exuberancenoting that 62% of global stock indices exceed their 50 and 200 day moving averages.
What else is coming in the coming week
Most of the third-quarter earnings season is over, and it has mostly left investors happy. By the end of November, with 94% of S&P 500 companies beating analyst estimates, 82% had beaten 5- and 10-year estimates, according to FactSet data. The beat margin was 7.1%.
The main contributors to the gains were the financials, consumer discretionary, information technology and communication services sectors. Health care is lagging behind.
The outlook for the fourth quarter calls for an overall profit increase of 2.9% compared to last year.
The biggest stocks released in the coming week: mining giant BHP Group (BHPLF) – Get a free report and Toll Brothers (TOL) – Get a free report; Tuesday; spirits manufacturer Brown Forman (BF.A) – Get a free report Wednesday; and Broadcom (AVGO) – Get a free report and Lululemon Athletica (LULU) – Get a free report
In addition to the jobs report, there are reports on Monday’s auto sales; and mortgage data on Wednesday.
