Two-month-long U.S. Market Rally Extend 2023 Gains

Barry Adams
20 Dec, 2023
New York City

Market indexes managed to turn around from morning weakness and extend their gains for the third day of this week, despite the fact that policymakers continued to push back on the rate-cut narrative dominating the market.

The S&P 500 index rose 0.1%, and the Nasdaq Composite increased 0.4% after advancing on Tuesday.

The Nasdaq Composite built on 0.7% gains in the previous session and traded above the 15,000 mark for the first time since January 2022 after the market rally pushed the index higher in the previous seven consecutive weeks.

The S&P 500 index advanced and extended the previous session's gains of 0.6% and approached its record high in January 2022.

Both benchmark indexes have rallied for seven weeks in a row and advanced above 4.4% in December after investors expanded bets on the Federal Reserve's cutting rates in 2024.

Several inflation indicators confirmed the easing of inflation, bolstering market sentiment over the last two months.  

Moreover, the Federal Reserve held the fed funds rate for the third time in a row, and signaled possible rate cuts in 2024, at the end of its final meeting on December 12–13, further fueling the market rally. 

For the year so far, the S&P 500 index is at 24%, and the Nasdaq Composite gained 43.4%.

 

Existing Home Sales Expand After Five Months of Slide

Existing home sales rose in November after declining for five months in a row, the National Association of Realtors said Wednesday.

Sales increased from the previous month in the Midwest and in the South but declined in the West and in the Northeast, but sales declined in all four regions from a year ago.

Existing home sales increased by 0.8% from the previous month in November but decreased by 7.3% from a year ago.

"The latest weakness in existing home sales still reflects the buyer bidding process in most of October, when mortgage rates were at a two-decade high before the actual closings in November," said NAR Chief Economist Lawrence Yun.

"A marked turn can be expected as mortgage rates have plunged in recent weeks," Yun added. 

The median existing-home sales price advanced 4.0% from November 2022 to $387,600, the fifth consecutive month of annual price increases.

"Home prices keep marching higher," Yun added. "Only a dramatic rise in supply will dampen price appreciation."

The inventory of unsold existing homes decreased 1.7% from the previous month to 1.13 million at the end of November, or the equivalent of 3.5 months' supply at the current monthly sales pace.

 

U.S. Indexes and Yields

The S&P 500 index gained 0.1% to 4,775.02, and the Nasdaq Composite increased 0.4% to 15,060.45.

The yield on 2-year Treasury notes increased to 4.38%, 10-year Treasury notes inched lower to 3.88%, and 30-year Treasury bonds eased to 4.0%.

Crude oil increased $0.14 to $74.08 a barrel, and natural gas prices decreased 2 cents to $2.47 a thermal unit.

Gold decreased $5.65 to $2,034.70 an ounce and halted a four-day rally 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 102.33 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

FedEx dropped 11.1% to $248.85 after the parcel delivery company reported mixed quarterly results and an estimated annual revenue outlook that fell short of investors' expectations.

Tesla decreased 0.2% to $256.68 after the company sharply lowered prices on luxury sedan vehicles in China to match lower prices from market leader BYD.

General Mills declined 4% to $64.0 after the food products maker reported quarterly earnings were ahead of expectations but revenue fell short of estimates, and the company lowered its annual outlook.

Winnebago Industries decreased 4.5% to $71.80 after the company issued a cautious outlook, citing macroeconomic headwinds.

Toro Company jumped 9.7% to $97.83 after the lawn mover maker reported better-than-expected quarterly results.

 

European Markets Diverged, UK Inflation Dropped to 26-month Low 

European market indexes diverged, and investors digested the latest comments from central bankers.

Market indexes in Paris and Frankfurt declined but rose in London as investors reviewed another batch of economic releases.

The producer price index in Germany declined for the fifth month in a row and fell 7.9% in November, Destatis reported on Wednesday.

The producer price index decline was largely driven by the fall in energy prices from a high base in the previous year, and the decline was smaller than the 11.0% decline in October.

 

The German Consumer Climate Index Shows Improvement

Germany's consumer sentiment is expected to improve in January, according to a survey conducted by the market research firms GfK and Nuremberg Institute for Market Decisions.

The GfK Consumer Climate indicator for January 2024 rose to -25.1 from -27.6 in December, the highest since August, driven by higher income expectations and a desire to spend.

“It remains to be seen whether the current increase represents the beginning of a sustained recovery in consumer sentiment,” explains Rolf Bürkl, consumer expert at NIM.

 

UK Consumer Price Inflation Slows 

The consumer price index declined to 3.9% in November from 4.6% in October, the Office for National Statistics reported Wednesday.

The inflation index declined to the lowest since September 2021.

The inflation pressures eased in transportation services, including air fares, used cars, recreation and cultural gathering admissions, and live music events.

Food and non-alcoholic beverage price inflation eased to 9.1% from 10.1%, but the cost of housing and utilities fell at a slower pace of 3.4% from 3.5% in the previous month.

Restaurants and hotels price inflation held steady at 7.5%, communication services inflation at 8.1%, and education at 4.5%.

Core inflation, which excludes food and energy prices, eased to 5.1% from 5.7% in October and dropped to the lowest since January 2022.

 

Europe Indexes and Yields

The DAX index decreased 0.07% to 16,733.05, the CAC-40 index inched down 0.04% to 7,572.68, and the FTSE 100 index increased 1.1% to 7,715.68.

The yield on 10-year German bonds decreased to 1.98%; French bonds inched lower to 2.50%; the UK gilts inched lower to 3.56%; and Italian bonds inched lower to 3.62%.

The euro traded higher to $1.095, the British pound inched higher to $1.265, and the U.S. dollar eased to 86.20 Swiss cents.

Brent crude decreased $0.26 to $79.41 a barrel, and the Dutch TTF natural gas decreased by €0.94 to €33.52 per MWh.

 

Europe Stock Movers

Energy stocks traded higher after crude oil prices rebounded more than 1.5% on supply disruptions and rising tensions in the Red Sea.

BP plc gained 0.8% to 467.45 pence, Shell plc advanced 1% to 2,568.0, TotalEnergies SE added 0.2% to €62.11, and Repsol increased 0.1% to €13.58.

Petrofac Ltd. soared 34.2% to 30.10 pence after the energy industry service provider won a $1.4 billion multi-year contract from TenneT to expand the Dutch-German transmission system operator's offshore wind capacity in the North Sea.

Telefonica rose 3.7% to €3.70 after the Spanish government said it plans to buy as much as a 10% stake in the telecom operator.

The government announced its plan after the Saudi Telecom Company revealed a 9.9% stake in the company in September.

Spain considers Telefonica a defense service provider, giving a veto power to the Defense Ministry over who owns and controls shares in the company over 5%, unless the stockholders give up rights to have a board seat.

Indivior PLC rose 2.8% to 1,179.0 pence after the company settled its patent dispute with Actavis Laboratories, a subsidiary of Israel-based Teva Pharmaceuticals.

Teva Pharmaceuticals advanced 0.9% to €9.48 in Paris trading.

Aurubis AG decreased 0.6% to €77.04 after the German copper company confirmed a 38% plunge in its earnings in the fiscal 2023 period ending in September.

Revenue in the fiscal year declined 8.8% to €17.0 billion from €18.5 billion, consolidated net income dropped 38% to €268 million from €433 million, and diluted earnings per share fell to €6.13 from €9.91 a year ago.

Deutsche Post AG decreased 1.4% to €45.10 after the U.S.-based FedEx lowered its full-year revenue outlook, citing macroeconomic challenges.