Closing Stock Market Summary
The stock market rallied today. The Dow Jones Industrial Average (+1.4%) surged more than 500 points to close at a new record high. The S&P 500 (+1.4%) closed above 4,700 at its highest level since January 2022.
Stocks initially traded in a cautious manner today despite some welcome disinflation seen in the November Producer Price Index. Market participants were not showing a lot of conviction as they waited for the latest policy move by the FOMC.
Buying picked up immediately after the market learned that the committee voted unanimously to leave the target range for the fed funds rate unchanged at 5.25-5.50%. This was accompanied by an updated Summary of Economic Projections that featured an improved growth outlook for 2023, a lowered inflation outlook for 2023 and 2024, and a median estimate of three rate cuts in 2024 versus a previous estimate of two rate cuts.
Fed Chair Powell also acknowledged in his press conference that the FOMC discussed when it will become appropriate to begin dialing back its policy restraint.
Stocks and bonds both exhibited strong responses to these developments, suggesting that participants believe the Fed is more aligned now with the market's more hopeful rate-cut view. The 2-yr note yield, which is most sensitive to changes in the fed funds rate, plunged 28 basis points to 4.46% and the 10-yr note yield sank 18 basis points to 4.02%.
Market participants also adjusted rate cut expectations in response to the Fed's latest moves. According to the CME FedWatch Tool, the probability of a 25 basis points rate cut at the March FOMC meeting jumped to 74.4% from 48.5% shortly before 2:00 p.m. ET.
Just about everything came along for the rally, which featured the outperformance of small cap stocks, leaving the Russell 2000 up 3.5%. Notably, mega cap stocks lagged relative to the broader market. The equal-weighted S&P 500 logged a 2.1% gain and the Vanguard Mega Cap Growth ETF (MGK) rose 1.1%.
All 11 S&P 500 sectors registered gains ranging from 0.7% (communication services) to 3.7% (utilities).
- Nasdaq Composite: +40.8%
- S&P 500: +22.6%
- Dow Jones industrial Average: +11.9%
- S&P Midcap 400: +11.4%
- Russell 2000: +10.6%
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index 7.4%; Prior 2.8%
- November PPI 0.0% (consensus 0.1%); Prior was revised to -0.4% from -0.5%; November Core PPI 0.0% ( consensus 0.2%); Prior 0.0%
- The key takeaway for the continued disinflation view is that the index for processed goods for intermediate demand was unchanged month-over-month while the index for unprocessed goods for intermediate demand declined 1.4% in November.
Looking ahead to Thursday, market participants will receive the following economic data:
- 08:30 ET: Initial jobless Claims (Briefing.com consensus 222K; Prior 220K) and Continuing Jobless Claims (Prior 1.861M); November Retail Sales (consensus -0.1%; Prior -0.1%) and Retail Sales, Ex-Auto (Briefing.com consensus 0.0%; Prior 0.1%); November Export Price Index (Prior -1.1%) and Export Prices, ex-agricultural (Prior -1.0%); November Import Price Index (Prior -0.8%) and Import Prices, ex-fuel (Prior -0.2%)
- 10:00 ET: October Business Inventories (consensus 0.1%; Prior 0.4%)
- 10:30 ET: EIA Natural Gas Inventories (Prior -117 bcf)