Markets This Week, 12/11-12/15, 2023: Will the Data Confirm the Goldilocks Scenario?

Economy and Markets: The Week Ahead

This week the markets will be focusing on the Federal Reserve’s policy meeting, scheduled to take place on Wednesday. While it is widely anticipated that the policymakers will stay put, investors will zoom in on the Federal Open Market Committee (FOMC) members’ rhetoric and interest rate outlook.

Importantly, December’s FOMC meeting will be accompanied by the release of the Fed’s quarterly economic projections summary, commonly known as the “Dot Plot.” The Dot Plot is a chart that summarizes the central bank’s benchmark federal funds interest rate outlook for the short, medium, and long term. Since the data-driven Fed adjusts its economic projections every quarter based on fresh data, as well as other developments impacting the economy, investors pay much closer attention to the near-term projections.

At the moment, markets appear virtually certain that the Federal Reserve’s hiking campaign is over, and the central bank will soon pivot to easier monetary policy. Previously, Fed officials acknowledged that inflation is easing, lending even more ground to the markets’ expectations of rate cuts beginning in the first half of 2024. While most analysts are mentioning two rate cuts next year, the markets now price in a greater-than-50% chance of the Fed’s rates falling by at least 1.25% by the end of 2024. That is one of the reasons to watch for clues in the Dot Plot: if the projections conflict with the market’s optimistic outlook, stocks may encounter a fresh bout of volatility.

Investors are strongly advised to follow the economic reports, too. The latest labor market report showed that the U.S. economy added more jobs in November than was expected; the monthly wage growth also surprised on the upside. At the same time, December’s consumer sentiment rose for the first time in five months, while 1-year consumer inflation expectations tumbled to their lowest since March 2021. This week, the reports on CPI inflation, retail sales, and PMIs will help print a clearer picture of the economy’s health, strongly affecting the policymakers’ forward-looking stance.

Stock markets resumed their happy stride on the back of a strong jobs report, even though it seemingly contradicts the bets of the Fed beginning to cut rates as early as March, or in May at the latest. The report was not hot enough to dissipate investor optimism about the imminent Fed pivot, but robust enough to support the widely held belief that the economy is heading to a “soft landing,” i.e., low but still positive growth, and softening inflation. This Goldilocks scenario fueled the market rally last month, and, barring any sudden changes in the data or other negative surprises, is expected to carry the markets higher into 2024.  

Meanwhile, stocks logged in their sixth straight week of gains, in their longest winning streak since 2019, with the S&P 500 (SPX) reaching its 2023 closing high. The biggest winner of the week was the Nasdaq Composite (NDAQ) with a gain of 1.76%, closely followed by the Nasdaq-100 (NDX), which gained 1.72%. The SPX increased 0.93%, and the Dow Jones Industrial Average (DJIA) rose 0.27%.

In this uncertain environment, investors are strongly advised to closely follow economic reports and to base their decisions on trustworthy data and analysis.

Upcoming Earnings and Dividend Announcements

The Q3 2023 reporting has almost ended, but there are still some important reports scheduled this week.

The most noteworthy earnings events this coming week are the reports of Oracle (ORCL), Adobe (ADBE), Costco Wholesale (COST), Lennar (LEN), and Darden Restaurants (DRI).

Companies’ reporting dates, consensus EPS forecasts, past data, analyst ratings, and price targets can be found on the TipRanks Earnings Calendar.

This week, Ex-Dividend dates are coming for the payouts of Best Buy Co (BBY), Lam Research (LRCX), Hewlett Packard Enterprise (HPE), HCA Healthcare (HCA), Taiwan Semiconductor Manufacturing (TSM), Merck & Company (MRK), Gilead Sciences (GILD), and other dividend-paying firms.

Companies’ Ex-Dividend and Dividend Payment dates, analyst ratings, and price targets can be found on the TipRanks Dividend Calendar.

Upcoming Economic Calendar Events

There are several important reports scheduled to be published in the next few days:

» November’s CPI and CPI ex. Food and Energy (Core CPI) – Tuesday, 12/12 – These reports measure changes in the retail prices of goods and services in corresponding data subsets. The CPI report is one of the two key inflation measures (the second one is the Personal Consumption Expenditures or PCE). Policymakers, businesses, and consumers closely watch the CPI report, as it reflects the price trends in the economy, shapes consumer spending and business outlooks, and directly affects the Federal Reserve’s policy rate decisions.  

» November’s Producer Price Index (PPI) – Wednesday, 12/13 – This report, released by the Bureau of Labor Statistics, reflects input prices for producers and manufacturers. Since PPI measures the costs of producing consumer goods, which directly affects retail pricing, PPI is seen as a good pre-indicator of inflationary pressures, i.e., a leading indicator for the next month’s CPI. Thus, the PPI serves the policymakers in shaping their overall inflation outlook. 

» November’s Retail Sales – Thursday, 12/14 – This report, released by the U.S. Census Bureau, provides information on how much money consumers are spending on various durable and non-durable goods. Since the report tracks the amount of spending in an economy, it helps to gauge the economy’s health and consumer spending habits, as well as the level of the buy-side inflation pressures.

» December’s S&P Global Manufacturing PMI and Services PMI (preliminary readings) – Friday, 12/15 – The Manufacturing PMI captures business conditions in the manufacturing sector, which contributes a significant part of total GDP; thus, the manufacturing PMI is an important indicator of business conditions and the overall economic condition in the U.S. Services PMI captures business conditions in the services sector; it is a crucial indicator since the services sector is responsible for almost 80% of total U.S. GDP. PMI indices are leading economic indicators used by economists and analysts to gain timely insights into changing economic conditions since the direction and rate of change in the PMIs usually precede changes in the overall economy.

Current and scheduled economic reports, Fed statements, and other releases, as well as their level of impact on the stock markets, can be found on the TipRanks Economic Calendar.