The stock market rally has stalled as the Federal Reserve’s final meeting of the year approaches.
This past week, the Nasdaq Composite (^IXIC) was the only one of the three major indexes to post a weekly gain, closing up more than 0.3%. Meanwhile, the S&P 500 (^GSPC) fell about 0.6%, while a decline in healthcare stocks weighed on the Dow Jones Industrial Average (^DJI), which fell nearly 2%. The Dow Jones has now fallen for seven sessions in a row, the worst since February 2020.
Investors are in for a busy week of economic news, culminating in the Fed’s next interest rate decision on December 18. Markets widely expect the Fed to cut rates by 25 basis points, and investors are likely to focus on what the Fed will do. Chairman Jerome Powell will talk about the path forward in 2025 during his press conference on Wednesday at 2:30 PM ET.
Updates on November retail sales, the Personal Consumption Expenditures (PCE) index – the Fed’s preferred inflation gauge – and activity in the services and manufacturing sectors are also on the economic calendar.
In company news, quarterly results are expected from Micron (MU), Nike (NKE), FedEx (FDX) and Carnival Corporation (CCL).
Important to keep an eye on is the Fed’s most recent Summary of Economic Projections (SEP). That includes the “dot plot,” which charts policymakers’ expectations about where interest rates could go in the future, as well as Powell’s comments during his press conference.
When the Fed last published its dot plot in September, the average forecast was for the Fed funds rate to end 2025 at a range of 3.25% to 3.5%. Instead of the four rate cuts in 2024 forecast in September, markets are pricing in just two rate cuts next year, Bloomberg data shows.
“We think economic forecasts will show better growth and firmer inflation this year and that average interest rate forecasts will be revised to show three cuts next year instead of four as in the September points,” said Michael Feroli, chief economist of JPMorgan. wrote in a note to customers.
Bank of America economist Aditya Bhave wrote in a letter to clients that Powell will likely point to a “slower pace” of cuts during his news conference, including a pause in the rate-cutting cycle in January.
Ahead of the Fed’s decision on Wednesday, officials will get a new look at the state of consumers with the November retail sales report. Economists estimate that retail sales rose 0.5% in October from the previous month. The retail sales control group – which excludes several volatile categories such as gasoline and contributes directly to gross domestic product (GDP) – is also expected to have risen 0.4%.
Bank of America’s U.S. economic team believes this report will reflect a strong start to the holiday shopping season.
“Online retail spending was particularly strong around the Thanksgiving holiday season,” the team wrote in a note to customers on Friday. “In fact, holiday spending is above cumulative 2023 levels, despite a delayed Thanksgiving. Therefore, we expect a robust retail sales report for November, with retail sales excluding autos and core checks at 0.5% m/m. “
Last week, readings of both the Consumer Price Index (CPI) and the Producer Price Index (PPI) showed signs that inflation was making little progress toward the Fed’s 2% target. But many economists argued that there were promising signals in the details of these reports that should lead to a less worrying interpretation of the Fed’s preferred inflation gauge next Friday.
Economists expect the annual core PCE – which excludes volatile food and energy categories – to reach 2.9% in November, up from 2.8% in October. But for the previous month, economists forecast the core PCE to come in at 0.2%, down from October’s 0.3% increase.
“In our view, November’s inflation data should provide comfort that the disinflation process is continuing,” Michael Gapen, Morgan Stanley’s chief U.S. economist, wrote in a note to clients on Friday. “While headline and core CPI came in slightly above our expectations… we found the details of the report supportive of the idea that inflation would fall further in the near term.”
For ten consecutive trading days, more stocks in the S&P 500 have fallen than they have risen, the longest stretch since September 2001. Still, the S&P 500 is up about 0.3% for the period that covers all of December so far. Meanwhile, the equal-weighted version of the S&P 500 (^SPXEW), which isn’t overly affected by moves in major stocks within the index, is down more than 3%.
“Savvy traders should at least pay attention to some warning signs about the overall health of the market. So far, they are sniffles or just a case of bad breadth,” Steve Sosnick, chief strategist at Interactive Brokers, wrote in a note to clients. on Thursday. “But there are some symptoms that can lead to something more meaningful if left unattended.”
According to Sosnick, a rally in the market’s largest technology stocks is keeping the benchmark index afloat for the time being. On Wednesday, the Nasdaq Composite closed above 20,000 for the first time, while Alphabet (GOOG, GOOGL), Tesla (TSLA), Meta (META) and Amazon (AMZN) all rose to record highs
Charles Schwab senior investment strategist Kevin Gordon told Yahoo Finance that this market action comes as investors have digested sticky inflation pressures and the possibility that the Fed will cut rates less than initially, although next year is not a “surprise.”
“If rates remain slightly higher than consensus expectations for a little while longer, then companies that net benefit from higher rates are likely to do well in that scenario,” Gordon said, noting that the “Magnificent Seven” stocks fit that description .
Economic data: Empire manufacturing activity, December (5.8 expected, 31.2 previously); S&P Global US manufacturing PMI, provisional December (49.7 previously); S&P Global US services PMI, provisional December (56.1 previously); S&P Global US composite PMI, provisional December (54.9 previously)
Income: No significant merits.
Economic data: Retail sales month-on-month, November (+0.5% expected, +0.4% prior) Retail sales excluding cars and gasoline, month-on-month, November (+0.5% expected, +0.1% prior ); Retail sales control group month-on-month, November (+0.4% expected, -0.1% earlier); Industrial production, month-on-month, November (0.2% expected, -0.3% earlier); NAHB housing market index, December (46 expected, 46 previously)
Income: No significant merits.
Economic data: Building permits month-on-month, provisionally November (1% expected, -0.4% earlier); Housing starts monthly in November (2.5% expected, -3.1% earlier); FOMC Rate Decision (4.25% to 4.5% expected, 4.5% to 4.75% expected)
Income: Birkenstock (BIRK), General Mills (GIS), Lennar (LEN), Micron (MU)
Economic data: GDP annualized, quarter-over-quarter, third quarter, third estimate (2.8% expected, 2.8% earlier); Core PCE quarter-over-quarter, Q3 third estimate (2.1% prior); Business Outlook for Philadelphia, December (2.2 expected, -5.5 prior); Initial unemployment claims, week ending December 14 (242,000 expected); Leading index, November (-0.1% expected, -0.4% earlier); Existing home sales month-on-month, November (3.3% expected, 3.4% earlier)
Income: Accenture (ACN), BlackBerry (BB), CarMax (KMX), Conagra (CAG), Darden Restaurants (DRI), FactSet (FDS), FedEx (FDX), Lamb Weston (LW), Nike (NKE)
Friday
Economic data: Personal income, November (+0.4% expected, +0.6% earlier); Personal spending, November (+0.5% expected, +0.4% prior); PCE index month-on-month, November (+0.2% expected, +0.2% prior); PCE Index year-on-year, November (+2.5% expected, +2.3% prior); Core PCE Index month-on-month, November (+0.2% expected, 0.3% prior); Core PCE Index, year-over-year, November (+2.9% expected, 2.8% prior); University of Michigan Consumer Confidence Index, December final (74 prior); Kansas City Fed Services Activity, December (9 prior)
Income: Carnival Corporation (CCL), Winnebago (WGO)
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
Click here for an in-depth analysis of the latest stock market news and events affecting stock prices
Read the latest financial and business news from Yahoo Finance
