Stock Market Predictions 2024: Inflation, Bond Auctions, and the Fed’s Policy Meeting
Dec 13, 2023
In the epicentre of a busy financial landscape, U.S. stocks showcased resilience, posting modest gains against inflation concerns and the start of the Federal Reserve’s two-day policy meeting. Let’s discuss the latest market developments.
In late-morning trading on Tuesday, U.S. stocks pushed higher, accompanied by an increase in Treasury yields and a slight retreat of the dollar against global currencies. Investors meticulously examined a key inflation reading prior to the Federal Reserve’s policy meeting, seeking clues on the future trajectory of interest rates.
The Treasury’s final major auction of the year, a $21 billion sale of 30-year bonds, resulted better than was expected. Investors submitted bids totalling just over $51 billion, resulting in a bid-to-cover ratio 2.43, surpassing the previous month’s auction. Indirect investors, primarily foreign central banks, increased their participation to 68.5%, signalling confidence in the market.
Despite the positive sentiment, the market’s volatility scale, the CBOE Group’s VIX index, hit its lowest level in almost four years, indicating a certain satisfaction among traders as they approached the Federal Reserve’s meeting. The VIX’s decline suggests traders are pricing in daily moves in the S&P 500 of around 0.76% for the next 30 days, a notable contrast to estimates in mid-October.
Following the November inflation report, which showed a 0.3% rise in monthly core pressures, Treasury yields move higher, with benchmark 2-year notes reaching around 4.741% and 10-year notes at around 4.235%. The Commerce Department’s report confirmed a headline reading of 3.1%, in line with expectations, but the core prices, holding at an annualised rate of 4%, pose potential challenges for the Federal Reserve in conveying its near-term rate messaging during the ongoing two-day meeting.
Notably, the National Federation of Independent Business reported a modest dip in November’s small business optimism index. While understated, this decline reflects the broader pressures American companies face due to the Federal Reserve’s persistent commitment to a “higher-for-longer” rate strategy.
Economists anticipate a modest easing in headline inflation for November, projecting a year-on-year reading of 3.1%. This is attributed to a significant month-on-month decline in gasoline prices. However, core price pressures are expected to remain steady at an annualised rate of 4%, influenced by downturns in rents and non-housing services costs.
Market reactions to the inflation report were measured, with futures tied to the S&P 500 indicating a modest opening bell gain. Simultaneously, U.S. Treasury yields saw a 2 basis point rise to 4.218%. The U.S. dollar index marked a 0.33% decline, reflecting a nuanced sentiment of bets on a near-term Fed interest-rate cut, along with upward movements in the pound and euro.
As the global economic landscape shifts, futures for the S&P 500 and Dow Jones Industrial Average suggest positive openings, while European stocks remain stable and Asian markets exhibit a mixed response. The interconnectedness of these global financial markets adds complexity to the ongoing narrative of Stock Market Predictions for 2024.In conclusion, the recent market trends underscore a cautious optimism among investors. The complicated movement between inflation, Fed policy, and global economic indicators provides a nuanced backdrop for Stock market predictions 2024.