(Bloomberg) — Stocks started the week cautiously as traders refrained from making big bets ahead of key economic data and meetings of major central banks that will test the market's optimism about interest rate cuts in 2024.
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In less than 24 hours, Wall Street will get a sense of whether the disinflationary trend is continuing using November's consumer price index. The report comes a day before the Federal Reserve's final scheduled decision of 2023, with officials widely expected to keep interest rates on hold and release their summary of economic forecasts. The question is whether the Fed will try to dampen expectations of monetary easing after investors aggressively adjusted its expansionary pricing policy.
For Greg Marcus of UBS Private Wealth Management, much of the stock market's recent strength is based on expectations of a soft landing and falling interest rates in 2024. While this soft landing scenario is certainly possible, it is not certain. The Fed will likely start cutting interest rates sometime next year, but that could be because the economy is slowing and possibly contracting. In that case, markets would look different than they do now, he noted.
“We expect the Federal Reserve to take another interest rate pause on Wednesday, which would be a sign that inflation is falling,” Marcus added. “While the market is pricing in rate cuts in 2024, we expect the Fed to downplay the possibility of rate cuts in 2024 in its comments on Wednesday.”
The S&P 500 hovered around 4,600 after posting gains for the sixth straight session – its longest winning streak since November 2019. 10-year Treasury yields rose four basis points to 4.26%. The dollar rose. Bitcoin posted its biggest decline in nearly four months as traders moved to lock in profits following a more than 150% rise this year, leading to major unwinds of bullish bets.
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The S&P 500 will hit a record high in 2024 if the US does not slip into a recession. However, according to Bloomberg's latest Markets Live Pulse survey, the index will gain less than this year's 20% rise due to weaker consumer spending.
A median of 518 respondents expect the S&P 500 to rise to 4,808 points next year – surpassing its previous closing peak of 4,797 in January 2022 – and that the 10-year Treasury yield will rise from this year's high of 5% to will fall by 3.8%. More than two-thirds of respondents said they do not see a hard landing in the economy as the biggest risk to markets, and the majority expect the Federal Reserve to begin cutting interest rates before July.
One of Wall Street's biggest bulls estimates that the S&P 500 will hit 5,200 points next year, setting a new record. The target implies almost 13% gains from last Friday's closing price.
“We expect 2024 to be a year of transition as markets manage what we expect to be the Fed's reversal from tight monetary policy to looser monetary policy,” said John Stoltzfus, chief strategist at Oppenheimer Asset Management.
The S&P 500 is expected to hit a record high next year, supported by “steady” sector-level earnings growth and an extension of the rally beyond mega-cap tech stocks, according to Citigroup strategists. Scott Chronert's team assumes that the S&P 500 will end 2024 at around 5,100 points.
U.S. growth stocks will outperform their value peers next year as economic growth remains moderate and interest rates don't rise much further, according to strategists at Goldman Sachs Group Inc.
Historically, growth stocks' performance has been strongest during periods of modest economic growth, “as investors place a premium on stocks that are growing faster than the economy,” wrote a team led by David Kostin.
U.S. corporate profits are likely to weaken in the fourth quarter before recovering in 2024, says Morgan Stanley's Michael Wilson.
The strategist highlights a “strong downward revision” to consensus estimates for the fourth quarter, adding that he is less optimistic than other strategists about the extent of margin expansion next year. “We expect earnings risk to persist in the near term before a broader recovery takes hold over the next year,” he wrote in a note.
Company highlights:
Macy's Inc. received a $5.8 billion takeover offer from Arkhouse Management and Brigade Capital Management, a bet that the venerable retailer can better manage its turnaround as a private company.
Cigna Group's abandonment of talks with Humana Inc. prematurely ended one of the biggest deals of the decade.
Occidental Petroleum Corp. agreed to acquire Texas shale oil driller CrownRock LP in a cash-and-stock deal worth about $10.8 billion as consolidation intensifies in North America's most productive oil basin.
Apple Inc.'s price target was raised to $250 from $240 at Wedbush, seeing strong growth potential for the iPhone maker.
Nike Inc. was upgraded by Citigroup Inc., which cited attractive margin recovery amid “unsettled macro.”
BlackBerry Ltd. will no longer spin off its Internet of Things business, a reversal of a previously announced turnaround plan.
Among others, DoorDash Inc. and MongoDB Inc. are to be included in the Nasdaq 100. The changes will take effect before the market opens on December 18th.
Manulife Financial Corp. agreed to reinsure C$13 billion ($10 billion) in reserves with KKR & Co.'s Global Atlantic Financial Group and its partners. According to the company, this is the largest long-term care reinsurance transaction in the history of the industry.
The US announced the first semiconductor grant under the Chips Act 2022, awarding $35 million to the US subsidiary of British aerospace company BAE Systems Plc to boost production of military chips.
Important events this week:
Japan PPI, Tuesday
Germany ZEW survey expectations, Tuesday
UK Jobless Claims, Unemployment, Tuesday
US CPI, Tuesday
Reserve Bank of Australia Governor Michele Bullock speaks at the AusPayNet Summit in Sydney on Tuesday
Eurozone industrial production, Wednesday
US PPI, Wednesday
Federal Reserve policy meeting and press conference with Chairman Jerome Powell, Wednesday
European Central Bank policy meeting, followed by a press conference with ECB President Christine Lagarde, Thursday
Bank of England policy meeting, Thursday
Policy meeting of the Swiss National Bank, Thursday
US initial jobless claims, retail sales, business inventories, Thursday
China 1-year MLF rate and volume, property prices, retail sales, industrial production, unemployment rate, Friday
Eurozone S&P Global Manufacturing PMI, S&P Global Services PMI, Friday
US industrial production, empire manufacturing, cross-border investment, Friday
Some of the key moves in the markets:
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The S&P 500 was little changed at 9:37 a.m. New York time
The Nasdaq 100 rose 0.1%
The Dow Jones Industrial Average rose 0.2%
The Stoxx Europe 600 rose 0.1%
The MSCI World Index has hardly changed
Currencies
The Bloomberg Dollar Spot Index rose 0.2%
The euro was little changed at $1.0753
The British pound rose 0.2% to $1.2573
The Japanese yen fell 0.9% to 146.19 per dollar
Cryptocurrencies
Bitcoin fell 4.3% to $41,926.9
Ether fell 5.7% to $2,224.55
Tie up
The 10-year Treasury yield rose four basis points to 4.26%
The 10-year German government bond yield fell two basis points to 2.26%
The 10-year UK government bond yield rose two basis points to 4.06%
raw materials
West Texas Intermediate crude fell 0.4% to $70.91 a barrel
Spot gold fell 0.8% to $1,989.43 an ounce
This story was produced with support from Bloomberg Automation.
– With support from Emily Graffeo, Sunil Jagtiani, Farah Elbahrawy, Sagarika Jaisinghani and Kasia Klimasinska.
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