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Wall Street faces nervy week with dual sentiment test

It’s going to be a nervy half-week ahead for Wall Street, with a rare twin sentiment tester to contend with: a monthly consumer inflation report and then a Fed meeting, complete with new forecasts.

That means no one will be game to take a real position until the two events are done and dusted, though no change from the Fed meeting is widely expected. So, Wall Street equities should have a couple of quiet sessions after last week’s moves that saw the S&P 500 end Friday at a new high for the year after the November jobs report and University of Michigan consumer survey data signaled a resilient economy and cooling inflation.

That added fuel to the widely held expectation for a so-called “soft landing” scenario for the US economy in 2024.

November’s labor force report showed an unexpected drop in the unemployment rate to 3.7% in November from 3.9% the month before, contrary to expectations. The economy added 199,000 jobs, slightly ahead of the 190,000 market estimate and well ahead of the 150,000 jobs added in October. Wages edged up 0.3% month on month and eased to an annual 4% from 4.1%. Consumer confidence picked up as well.

That saw the S&P 500 close up 0.41% at 4,604.37; the Nasdaq was up 0.45% at 14,403.97, and the Dow had a near-matching gain, up 0.36% to end at 36,247.87.

The S&P 500 posted its highest close of the year last week but had yet to exceed its 2023 intraday high set in July until Friday, when it topped 4,609 in afternoon trading. The benchmark is now up about 20% on the year and trading at its highest level since March 2022.

All the major averages finished last week with gains. The S&P 500 jumped 0.2% over the five days, while the Dow finished marginally higher.

The S&P 500’s rally has brought it back to around where it stood when the central bank last raised rates in July.

Both indexes wrapped up six winning weeks, their longest run since 2019. The Nasdaq advanced 0.7% amid more chatter about AI.

Apple shares ended the week with a market value above $US3 trillion at $US3.04 trillion for a 3% gain for the week and more than 7% in the past month.

The jobs report continues to portray an economy that “isn’t on the brink of recession,” while the combination of falling inflation expectations and a pickup in consumer sentiment supports a soft landing outcome, said Michael Arone, chief investment strategist at State Street Global Advisors.

“As long as the soft landing outcome stays intact, the bias for stocks and risk assets remains positive,” he said, noting that inflation coming down, and a better labor supply and demand balance without a major uptick in unemployment are all positives for sentiment.

The key University of Michigan survey showed inflationary expectations eased, and consumer sentiment jumped in December to its highest level since July.

These data points all help support the thesis that the Fed is likely done with its rate-hiking cycle, said Mona Mahajan, Edward Jones senior investment strategist.

The ASX 200 is heading for a small 16-point gain today after the local futures market ended last week with a solid gain.

That was after Friday’s 0.3% rise and the much stronger 1.7% jump over the week.

The fall in gold and oil prices won’t help shares in those sectors – even with the specter of the $80 billion merger talk around Woodside (down) and Santos (up).

But the drivers for our market will be the US inflation data for November tomorrow night and the Fed statement and forecasts early Thursday (6 am Sydney time).

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