- The S&P 500 hit a new annual high on positive employment reports and declining inflation, suggesting a strong economy.
- Major stock indexes, including the Dow Jones and Nasdaq, closed with big gains, recording their best streak since 2019.
- Recent economic data indicate that the US Federal Reserve may end its rate hike cycle, favoring a strong economic recovery scenario.
A Successful Close: The Rise of the S&P 500
Last Friday, the S&P 500 experienced a significant increase, marking a milestone for the year. This improvement was largely due to positive November employment reports and consumer survey data from the University of Michigan, which suggested a strong economy and declining inflation. This scenario encourages hope for a “soft landing” scenario.
The S&P 500 closed with an increase of 0.41%, reaching 4,604.37 points. Similarly, the Nasdaq Composite rose 0.45%, closing at 14,403.97, while the Dow Jones Industrial Average registered an increase of 130.49 points, or 0.36%, ending at 36,247.87.
All-Time Highs and Positive Outlook
Last week, the S&P 500 recorded its highest close of the year but did not surpass the intraday high of 2023, set in July, until Friday, when it exceeded 4,609 points in afternoon operations. So far, the index has risen by approximately 20% on the year, reaching levels not seen since March 2022.
Market Analysis: An Optimistic View
All major stock indices closed the week with gains. The broad market index posted a 0.2% jump for the period, and the Dow finished slightly higher. Both indexes completed six weeks of gains, their longest streak since 2019. Meanwhile, the Nasdaq advanced 0.7%.
Michael Arone, chief investment strategist at State Street Global Advisors, said job reports continue to show an economy “not on the brink of recession,” while a combination of declining inflation expectations and an increase in consumer confidence supports a slow landing result.
Key Economic Data: Employment and Inflation
The November nonfarm payrolls report revealed an unexpected drop in the unemployment rate, which fell from 3.9% to 3.7%. The economy added 199,000 jobs, slightly more than the 190,000 Dow Jones estimated and more than the 150,000 jobs added in October.
This early data raised concerns that the economy is too hot for inflation to cool enough for the Federal Reserve to begin pulling back from its high-rate policy. Some traders expect the Fed to start cutting rates as early as next spring, with the last policy meeting scheduled for Wednesday.
On the other hand, the monthly employment report may also support the idea that the Fed is guiding the US economy towards a soft landing and a strong economic recovery amid declining inflation. Average hourly earnings, seen as a leading indicator of inflation, rose as expected in November as the economy added more jobs than the previous month.
On the other hand, a closely watched survey from the University of Michigan showed inflation expectations decreased and consumer confidence rose in December to its highest level since July.
Finally, Mona Mahajan, senior investment strategist at Edward Jones, commented that these data points support the thesis that the Fed may be ending its rate-hiking cycle.