Markets This Week, 12/25-12/29, 2023: The Santa Rally Is Under Way

Economy and Markets: The Week Ahead

With no Fed members’ speeches, market-moving earnings reports, or other important events scheduled in this holiday-shortened week, the markets are expected to continue their happy ride on Santa’s sleigh into the New Year.

Last week was the 8^th straight week of gains, the longest such streak for U.S. stocks since 2017. The S&P 500 (SPX) came within 1% of its 2021 peak after increasing 0.4% for the week. The Nasdaq Composite (NDAQ) rose 0.9% on the week, though it remains far below its previous high. The Nasdaq-100 (NDX) increased by 0.6%, reaching another all-time high. The Dow Jones Industrial Average (DJIA) inched up 0.1%, remaining at a record high level. There were many factors pulling together to keep the party going.

Most economic data points published in the past month, such as jobs, consumer sentiment, housing, and others, upheld investors’ conviction that the U.S. economy is heading towards a “soft landing,” at worst. The Federal Reserve’s dovish pivot propelled the markets even higher, injecting optimism regarding a softer interest-rate environment in the coming year.

Just as the strength of the rally got some investors doubting whether it has more room to run, the Fed’s favorite inflation gauge, Core PCE, which excludes volatile food and energy prices, rose less than expected in November, confirming that the Federal Reserve is winning its fight to curb inflation. The fresh data firmed the markets’ bets that the Fed could start cutting interest rates as early as March, further lifting stock market optimism.

However, one very important but often overlooked data point raised many economists’ eyebrows. The Leading Economic Indicators (LEI) index fell 0.5% in November, its 20^th consecutive month of declines. The last time the LEI fell for so many months in a row was during the Global Financial Crisis (GFC) in 2008-2009, and the recession induced by it in the U.S.

The LEI, published by the Conference Board, is one of the most important indicators economists use to predict recessions and rebounds. As almost all indicators within the index (with the notable exception of stock prices) continue to flash red, the LEI suggests a downshift of activity ahead despite the economy’s ongoing resilience. The Leading Economic Indicators index is fairly accurate in predicting U.S. recessions. In the past 60 years, a sustained decline in the LEI preceded all but two recessionary periods (of which only one was a “regular” recession, with the second one being the unpredictable Covid-19 crisis). So, a recession may still be in the cards in 2024. However, this only strengthens the case for the Fed to start cutting rates soon, which may add even more fuel to the rally unless the economic downturn is harsher than the data is currently suggesting.

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

Upcoming Earnings and Dividend Announcements

The Q3 2023 reporting has ended, with no notable earnings reports scheduled this week.  

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 Costco (COST), General Electric (GE), American Tower (AMT), Stryker (SYK), Deere (DE), Humana (HUM), Micron (MU), Realty Income (O), along with many 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:

» October’s Housing Price Index – Tuesday, 12/26 – This report, released by the Federal Housing Finance Agency, measures changes in single-family home prices in the United States. In addition to its role as an indicator of housing price trends, the FHFA HPI also serves as an important indicator for the overall market, as changes in housing prices, which affect consumer confidence and job creation, are an important gauge of upcoming changes in the direction of the economy.

» November’s Pending Home Sales – Thursday, 12/28 – This report, published by the National Association of Realtors, is a leading indicator of future existing home sales. It accurately reflects economic conditions and consumer confidence and is closely watched by investors and policymakers for clues about the health of the economy.

» December’s Chicago Purchasing Managers Index (Chicago PMI) – Friday, 12/29 – This report, published by ISM-Chicago, Inc., captures business conditions across Illinois, Indiana, and Michigan, and is generally accepted as a solid representative of the overall economic conditions. The Chicago PMI serves as a leading indicator, helping policymakers and investors to anticipate changing economic trends in GDP, industrial production, employment, and inflation.

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