The US stock market has been on a roll, posting seven consecutive weeks of gains as of Monday. This impressive performance was driven by several factors, including the anticipation of lower interest rates, positive corporate news, and signs of improvement in the housing market. Here are the main highlights of the market’s recent rally and what to expect in the near future.
Lower Interest Rates on the Horizon
One of the key reasons for the market’s optimism is the expectation of lower interest rates in 2023. Investors are watching closely the key economic indicators. Especially the PCE inflation data, which measures the change in prices of goods and services consumed by Americans. The PCE inflation data is expected to be released on Friday and will provide clues on the potential price pressures in the economy.
The Federal Reserve has signaled that it is ready to cut interest rates by 75 basis points next year, in response to the slowing global growth and trade tensions. However, some Fed officials, such as John Williams and Raphael Bostic, have expressed caution and suggested that it is too early to consider a rate cut in March. These conflicting views have created some uncertainty in the market, but the overall sentiment remains positive.
Corporate News and Sector Performance
Another factor that boosted the market was the positive corporate news, especially in the tech and energy sectors. United States Steel Corporation’s shares soared by 25% on Monday. After reports that Japanese Nippon Steel was planning to acquire the company. This deal would create the world’s largest steel producer and benefit both companies in terms of cost savings and market share.
The tech sector also performed well, with mega-cap stocks like Alphabet, Amazon, NVIDIA, and Meta leading the gains. These companies have been benefiting from the strong demand for their products and services. As well as their innovation and expansion strategies. Apple was the only exception, as its shares dropped by 0.8% after announcing that it would stop selling Apple Watch in the US due to a patent infringement lawsuit.
The energy sector was another winner, as it followed the rise in energy prices. The price of oil reached its highest level since October. As the OPEC+ group agreed to cut production by 1.2 million barrels per day in 2023. This decision was aimed at balancing the supply and demand in the oil market. As well as supporting the oil-dependent economies. The energy sector’s positive momentum also added to the overall bullish sentiment in the market.
Housing Market Improves
The US housing market showed signs of improvement in December, as the NAHB/Wells Fargo Housing Market Index rose to 37. Up from 34 in November. This index measures the confidence of home builders and reflects the demand and supply conditions in the housing market. The increase in the index was attributed to the decline in mortgage rates, which made home buying more affordable and attractive for potential buyers.
The sub-indices for current single-family home sales, expected home sales over the next six months, and prospective buyers also increased, indicating a positive outlook for the housing market. NAHB Chief Economist Robert Dietz said, “The housing market appears to have passed peak mortgage rates for this cycle. And this should help to spur home buyer demand in the coming months.”
Treasury Yields Remain Low
The yield on the US 10-year Treasury note remained low, hovering around 3.9%. As traders continued to bet on lower interest rates by the Fed next year. The yield on the 10-year Treasury note reflects the market’s expectations of future interest rates and inflation. A lower yield means that the market expects lower interest rates and inflation in the future. Which is usually good for the stock market.
However, the low yield also reflects some concerns about the global economic slowdown and the trade tensions between the US and China. The market is hoping for a resolution of the trade dispute, which has been hurting the growth and confidence of both countries. The market is also looking for more clarity from the Fed on its interest rate policy and its assessment of the economic situation.
Commodity and Currency Movements
In the commodity market, Steel Rebar and Copper were among the losers, while Platinum was a gainer. Steel Rebar and Copper are widely used in construction and manufacturing, and their prices reflect the demand and supply in these sectors. Platinum is a precious metal that is used in jewelry and catalytic converters, and its price reflects the demand and supply in these markets.
In the currency market, the Swiss franc appreciated against the US dollar, reaching its highest level since late July. The Swiss franc is considered a safe-haven currency, which means that investors buy it when they are worried about the global economic and political risks. The Swiss franc was also supported by the Swiss National Bank, which has been trying to strengthen the currency and prevent deflation.
The Norwegian Krone and the Swedish Krona were the top gainers among the currencies, while the Japanese Yen, Mexican Peso, and Turkish Lira were the losers. The Norwegian Krone and the Swedish Krona are linked to the oil and the European markets, respectively, and their prices reflect the performance of these markets. The Japanese Yen, Mexican Peso, and Turkish Lira are affected by the trade tensions, the domestic political issues, and the inflation pressures, respectively.
Bitcoin and Ether also declined, with Ether falling by -3.47%. Bitcoin and Ether are the leading cryptocurrencies, which are digital assets that are based on blockchain technology. Their prices are influenced by the supply and demand in the crypto market. As well as the regulatory and technological developments in the crypto space.
What’s Next for the US Stock Market?
The US stock market has been enjoying a remarkable rally, thanks to the anticipation of lower interest rates, positive corporate news. And signs of improvement in the housing market. However, the market also faces some challenges. Such as the global economic slowdown, the trade tensions, and the uncertainty around the Fed’s policy. The market will be paying close attention to the key economic data and the central bank’s statements. Which will likely shape the market’s direction in the near future.