Next week is packed with significant economic data as we get the Consumer Price Index (CPI) and the Producer Price Index (PPI) before the next Fed policy statement on Wednesday. However, the precursor was the November payroll (jobs) report on Friday which was a healthy +199k jobs created with an unemployment rate of 3.7% and with an increase to the rate of labor participation.
Good news for the economy and this data is in the ‘not too hot’ category for economists predicting the goldilocks scenario for 2024. A few months ago, there was a concern that there would be widespread layoffs by now but the data is showing no signs of this scenario.
You can see in the headlines below that economists are predicting rate cuts in the middle of next year, however, inflation levels would need to continue their decline. Chair Powell has been steadfast in his higher for longer messaging and we will see if he changes that tone on Wednesday.
We can see in the chart below that 10Yr Treasury yields (TNX) peaked over the summer and the trend is lower for long bonds with a target at 3.909% and maybe a bit lower. The 10Yr is closely tied to the real estate markets and the decline in yields has provided some welcomed relief as evidenced by the mini refinance boom we are seeing in the mortgage markets.
The S&P 500
The reversal in long bond yields has given the stock market confidence in its continued advance over the last six weeks. The S&P is now approaching its next point of structural resistance at the March 2022 high just in time for the Fed meeting next week. Odds are we continue higher as the market has been consolidating (trading sideways) for the past two weeks so the surprise now would be a major decline.
Next week should set the tone of the market into early January. Stay tuned!
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Paul J McCarthy III
President, Kisco Capital