Title: A Pivotal Week for the Stock Market: S&P 500 Nears Historical Milestones while Investors Stay Vigilant
The S&P 500 (0.16% increase) is currently up 28% year-to-date, heading towards a potential 30% growth in 2024, marking the index's best performance of the 21st century. The stock market is on the brink of a make-or-break week with the Federal Reserve's December meeting looming ahead. Interest rate cuts have played a significant role in the S&P 500's historic run, and futures contracts indicate an 86% chance of a rate cut at the December meeting. However, the actual outcome depends on inflation data due on Wednesday and Thursday.
The Federal Reserve has been a bit off the mark with its initial rate cutting cycle in September. The estimates for GDP growth and unemployment were inaccurate, implying a stronger economy and job market than anticipated. Fed Chairman Jerome Powell acknowledged these discrepancies, hinting at a more cautious approach going forward. The inflation reports due this week, specifically the Consumer Price Index (CPI) on Wednesday and the Producer Price Index (PPI) on Thursday, will determine the Fed's next move.
The CPI and PPI data can sway the odds of a December rate cut and subsequently influence the stock market's trajectory. If the figures align with expectations, the stock market could rally with investors becoming more confident in a rate cut. Conversely, if inflation exceeds expectations, the stock market could plummet as investors lose confidence in the Fed's actions.
In November 2024, CPI inflation is expected to have increased by 0.3% month-on-month and 2.7% annually. Core PPI inflation, excluding food and energy, is predicted to be 0.2% month-on-month and 3.4% annually. These inflation numbers may set the stage for the Fed's interest rate cut decision.
The slight increase in CPI and core PPI inflation, while still under control, might prompt the Federal Reserve to reconsider their stance on further rate cuts, potentially delaying or reducing the magnitude of any future cuts. The market will remain vigilant, closely monitoring the Fed's reaction to the inflation data and its impact on the S&P 500's performance.
Investors may allocate more money towards investing in the stock market if the inflation figures align with expectations and the Fed proceeds with a rate cut, boosting confidence in the S&P 500's growth. Conversely, a surge in inflation could lead to a shift in finance strategies, with investors moving away from stocks and seeking alternative investments to protect their capital.
