The US stock market had a mixed performance in the last trading session before the holiday weekend, as investors digested the latest inflation data and its implications for the Federal Reserve’s monetary policy. Here are the main highlights of the market movements and the economic indicators that influenced them.

Stock Market Performance: S&P 500 and Nasdaq Rise, Dow Jones Falls

The S&P 500 and Nasdaq both rose by about 0.2%, continuing their positive streak from the previous weeks. However, the Dow Jones slipped slightly into the negative territory. The market sectors that performed well included energy, materials, and consumer staples, while consumer discretionary lagged behind. Nike shares plummeted by 11.8%, the biggest daily loss in more than a year, after the company lowered its sales forecast and announced plans to cut costs.

Inflation and Interest Rate Expectations: PCE Inflation Cools Down, Fed Rate Cuts Loom

The market was surprised by the cooler-than-expected PCE inflation figures for November, which showed that the Fed’s preferred measure of core inflation dropped to 3.2%, below the forecast of 3.3%. This sparked speculation that the Federal Reserve might lower interest rates in the coming year, which could affect the market dynamics.

Consumer Sentiment: Optimism Reaches Five-Month High, Inflation Expectations Drop

The consumer sentiment index for December, published by the University of Michigan, was revised upward to 69.7 from the initial reading of 69.4, reaching the highest level in five months. Consumers were more optimistic due to significant improvements in their views on inflation. They expected inflation to drop to 3.1% in the next year, the lowest level since March 2021, matching the preliminary estimate. The survey also showed a jump in consumer expectations, while the indicator of current economic conditions remained strong.

Housing Market: New Home Sales Plunge, Prices and Supply Rise

Sales of new single-family homes in the US fell by 12.2% in November, the sharpest decline since April 2022. Despite lower mortgage rates and higher mortgage demand, sales in the South and West dragged down the overall growth in the Midwest and Northeast. The median price of new homes sold was $434,700, and there were 451,000 homes for sale, which translated to a 9.2-month supply at the current sales pace.

Inflation Expectations and Building Permits: Both Decline in November

Inflation expectations for the next year in the US dropped to a nearly three-year low of 3.1% in December, driven by lower energy prices and the effect of interest rate increases. Building permits, a leading indicator of housing construction, decreased by 2.1% in November, hitting the lowest level in four months. Permits fell in the Northeast and South, but rose in the Midwest and West.

Income, Spending, and Inflation Data: Income Rises, Spending and Inflation Slow Down

Personal income in the US rose by 0.4% in November, with employee compensation seeing a significant increase. However, personal spending only grew by 0.2%, reflecting a reduction in spending on goods. Core PCE prices, which exclude food and energy, rose by 0.1%, adding to the sentiment that the Federal Reserve might cut interest rates multiple times in the next year.

Durable Goods Orders: Strong Growth Led by Transportation Equipment

New orders for manufactured durable goods in the US soared by 5.4% in November, the largest increase since July 2020. Transportation equipment was the main driver of the growth, with a notable increase in orders excluding transportation and defense.

Currency and Cryptocurrency Trends: Canadian Dollar and Euro Gain, Bitcoin and Ether Rise

The Canadian dollar appreciated against the USD, reaching the highest level since August, boosted by higher-than-expected inflation in Canada and contrasting with the dovish signals from the Federal Reserve. The euro also gained against the dollar, reaching a five-month high. Meanwhile, Bitcoin and Ether showed positive momentum, with Ether leading the way with a 3.95% gain.

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Merry Christmas Message

We hope you enjoyed this article and found it informative and useful. We wish you a Merry Christmas. Thank you for reading and stay tuned for more updates on the US stock market and the economy.