U.S. Stocks Approach Record Territory as Investors Bet On Rate Cut Scenario

Barry Adams
19 Dec, 2023
New York City

Benchmark indexes advanced in Tuesday's trading, and investors debated the future rate path and economic outlook.

Market indexes gained in the final full week of trading as indexes registered strong advances in the month, quarter, and year.

The S&P 500 index has advanced 3.8% in December and 23.5% in 2023, and the Nasdaq Composite has gained 4.8% in the month and 42.4% in the year so far.

The S&P 500 index is about 1% away from its record high. 

Investors have bid up stocks after inflation steadily edged lower in the year, largely reflecting lower energy prices, and resilient consumer spending kept the economic growth above 2%, contrary to the calls for recession by many economists at the beginning of the year.

Market expectations are running high that the Federal Reserve will begin to cut interest rates in 2024, but policymakers have stepped up rhetoric to temper market expectations.

Despite the cooling of inflation, core inflation is still significantly ahead of the Federal Reserve's target rate of 2%, and most of the progress on the inflation front is because of the weakening of crude oil prices compared to the high base in 2022 because of Russia's invasion of Ukraine.

 

Housing Starts In November Unexpectedly Soared 

Seasonally adjusted housing starts in November rose 14.8% from the previous month to an annual rate of  1.56 million homes, the U.S. Census Bureau reported Tuesday. 

October housing starts were revised to 1.359 million. 

November housing starts rose 9.3% from the annual rate of 1,427,000 in the month a year ago. 

Single-family housing starts in November were at a rate of 1,143,000, an increase of 18% above the revised October annual pace of 0.969 million.

The November rate for units in buildings with five units or more was 404,000.

Building permits decreased 2.5% from the previous month but rose 4.1% from a year ago in November to 1.46 million, and housing completions rose 5.0% from October but fell 6.2% from a year ago in the month to 1.447 million.

 

U.S. Indexes and Yields

The S&P 500 index gained 0.4% to 4,758.54, and the Nasdaq Composite increased 0.4% to 14,961.41.

The yield on 2-year Treasury notes increased to 4.43%, 10-year Treasury notes inched lower to 3.90%, and 30-year Treasury bonds eased to 4.02%.

Crude oil increased $1.01 to $73.83 a barrel, and natural gas prices decreased 1 cent to $2.50 a thermal unit.

Gold increased $10.67 to $2,038.44 an ounce and extended gains for the fourth day in a row after the dollar declined following the Fed's rate decision and announcement to cut rates several times over the next two years.

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged lower to 102.18 and extended the previous week's loss of 1.4% and the loss of 0.9% in the year so far.

 

U.S. Stock Movers

Alphabet Inc. rose 0.4% to $136.30, and the company's Google agreed to settle charges brought by the U.S. states and consumers in a San Francisco federal court.

The settlement was disclosed on Monday and still needs approval from the judge. Google did not admit charges of unnecessary fees for app transactions and unlawful restrictions on apps on Android devices.

Google will pay $70 million in a fund for all 50 states, the District of Columbia, Virgin Island, and Puerto Rico, and $630 million in a fund for consumers.

Eligible customers of the Google Pay store will receive $2 and may receive additional payments depending on their spending between August 16, 2016 and September 30, 2023.

Google is facing other legal challenges regarding its digital advertising practices, search process, and results.

Nikola Corp. increased 3% to $0.84 after a court sentenced the company's founder, Trevor Milton, to four years in prison for making false and misleading statements to drive up investor interest.

Milton was also fined $1 million and sentenced to three years of supervised release.

Stocks fell 10% after the news in Monday's trading but rebounded in Tuesday's trading.

In October 2022, Milton was found guilty of two counts of wire fraud and one count of securities fraud and faced 60 years of imprisonment.

In 2021, the company agreed to settle civil charges brought by the U.S. Securities and Exchange Commission for $125 million.

 

European Markets Advanced, France Growth to Accelerate 

European market indexes erased morning gains, and investors debated the future rate path and economic growth outlook for the next year.

Investors also digested the release of the consumer price index for the eurozone and the European Central Bank's directive for 20 banks to increase capital to cover potential losses from bad loans.

The yields on bond issues in the Euro Area held stable near a 9-month low, and the euro held its ground against the U.S. dollar.

 

Eurozone Inflation Confirmed at 2.4%

Consumer price inflation was confirmed to decrease by 0.5% from the previous month to 2.4% in November, Eurostat reported on Tuesday.

The inflation dropped to the lowest since July 2021 after service inflation eased to 4.0% from 4.6%, food, alcohol, and tobacco inflation slowed to 6.9% from 7.4%, and non-energy industrial goods inflation dropped to 2.9% from 3.5%.

Energy prices dropped 11.5% in November after falling 11.2% in the previous month.

Moreover, the statistical agency confirmed core inflation, which excludes food and energy prices, held at 3.6%, the lowest since April 2022.

 

Bank of France Estimated Economic Growth to Accelerate Over 3 Years 

The Bank of France lowered its estimate of GDP growth slightly to 0.8% from 0.9% in 2023 and estimated a gradual acceleration in growth over the next three years.

GDP growth is expected to pick up to 0.9% next year and accelerate further to 1.3% in 2025 and 1.6% in 2026.

The latest announcement from the central bank of France suggested that the second-largest economy in the eurozone is likely to avoid a recession.

"This acceleration in 2026 assumes that the effects of recent shocks to the French economy—external tax shocks, tightening of monetary and financial conditions—will have abated by that time," the bank noted in the statement released Tuesday.

Overall inflation is expected to be 5.7% in 2023 but fall sharply to 2.5% in 2024, and both estimates were lowered by 0.1 percentage points from the September estimate.

Core inflation is expected to hold at 4% this year before easing to 2.5% next year and dropping to 2.2% in 2025.

The bank also revised higher jobless rates by 0.1 percentage points in 2023 and 2024.

The jobless rate is now estimated to increase to 7.6% next year from 7.3% this year.

  

Europe Indexes and Yields

The DAX index increased 0.6% to 16,744.41, the CAC-40 index inched up 0.07% to 7,574.67, and the FTSE 100 index increased 0.3% to 7,638.03.

The yield on 10-year German bonds increased to 2.02%; French bonds held at 2.54%; the UK gilts inched higher to 3.66%; and Italian bonds inched lower to 3.70%.

The euro traded higher to $1.094, the British pound inched higher to $1.269, and the U.S. dollar eased to 86.62 Swiss cents.

Brent crude increased $0.97 to $78.93 a barrel, and the Dutch TTF natural gas decreased by €2.95 to €32.57 per MWh.

 

Europe Stock Movers

Sodexo SA decreased 0.4% to €98.38, and the catering and food service group confirmed its plan to seek shareholder approval for the spinoff of Pluxee at the meeting on January 30, 2024.

Covestro AG increased 1.9% to €54.0 on reports that the Abu Dhabi National Oil Company is looking to increase its takeover offer for the German chemical company.

Bayer AG added 0.4% to €32.24 after a U.S. jury ordered the company's unit, Monsanto, to pay $857 million for toxic leaks at a school.

The company said it plans to appeal the decision.

Banks were in focus after the European Central Bank raised the capital requirement for non-performing loans at 20 banks without naming any banks.

Deutsche Bank decreased 0.4% to €11.94, and Commerzbank fell 0.4% to €10.43.

Societe Generale declined 0.9% to €23.99, UniCredit SpA increased 0.5% to €24.24, BNP Paribas fell 0.2% to €62.27, and Banco Santander eased 0.4% to €3.77.