U.S. Stocks closed higher on Friday, December 1^st, 2023 in tandem with a rally in the bond market. 

Inflation Insights And Fed Comments 

Earlier in the week, the Commerce Department’s report on the core Personal Consumption Expenditures (PCE) price index revealed a 0.2% rise in October, marking a slowdown from September. 

The year-over-year increase settled at 3.5%, a figure still above the Fed’s 2% target but notably the lowest since April 2021. Over the past six months, the core PCE maintained a slower annualized rate of 2.5%.  

Fed Chair Jerome Powell’s shift in tone during Friday’s speech potentially contributed to the stocks and bonds upbeat close. Powell acknowledged that interest rates had entered a “restrictive territory” but cautioned about potential future rate hikes, depending on upcoming data. 

Market Performance 

Despite early signs of decline, the market recovered as expected, with investors pushing prices higher.

The major indexes showcased a strong performance for the fifth consecutive week. The Dow surged by 2.4%, the S&P climbed 0.7%, and the Nasdaq Composite edged up by 0.4%. 

Here are the closing levels on Friday, December 1^st, 2023: 

Selective Optimism And Yield Concerns 

Investor sentiment appeared selectively optimistic, choosing to focus on positive market news while disregarding Powell’s remarks about potential rate hikes.  

Moreover, comments from other Fed officials dismissing the notion of cuts at present were also overlooked. 

However, the decline in the 10-year yield, approaching 4%, sparked concerns among some experts. The decrease in yield caused speculation of a recession. This contradicts the current market trends and could potentially result in new record highs.

The Direction Ahead And Cautionary Notes  

The current momentum in the market is not affected by negative signals and will continue until something causes a change. Such instances sometimes foreshadow an imminent pullback or correction. 

The current focus remains fixated on the anticipation of rate cuts arriving sooner than previously anticipated. While holding long positions through any pullbacks might be a sound strategy, averaging up at these levels might not be advisable. 

Additionally, it’s crucial to note that December tends to witness lower trading volumes, contributing to significant price fluctuations. 

Source: CBOE, Bloomberg 

This commentary is written by James Gomes, a seasoned finance industry veteran with extensive experience of over 30 years, including a substantial tenure at a reputable U.S. bank exceeding 20 years.