On Wednesday, stock indexes snapped their nine-day upward march, as investors took profits on the rally which propelled the Dow Jones Industrial Average (DJIA) and the Nasdaq-100 (NDX) to new highs, and drove the S&P 500 (SPX) within a touching distance of its all-time high.
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The nine-week surge concerned many investors that stocks may be prone to correction, as they are now firmly in the overbought territory. Besides, the anticipation of the release of the all-important Core PCE inflation report on Friday added to investor nervousness, leading them to adjust holdings going into the long holiday weekend, with the markets closed Monday.
The economic data published in the past few days continued to reflect a robust economy, with the Consumer Confidence Index jumping to its highest since July, and the Existing Home Sales report showing an unexpected increase and hinting at a possible turnaround in the housing market.
Markets continued rising in the trading week to mid-day Wednesday, dismissing the Federal Reserve members’ attempts to rein in rate-cut expectations. While several policymakers tried to convey that the rally-inducing rate-cut optimism is premature, futures markets are pricing in a 70% probability of a 0.25% rate cut in March, and a 56% chance of a total of 1% rate decreases by July 2024.
Last week’s Fed’s dovish pivot sent stocks on such a barnstorming rally that even if they continue to decline into the weekend, investors who stayed long despite the bears’ warnings, are now taking home appreciable Christmas presents. It will be seen next week whether the traditionally expected Santa rally will overcome investors’ nervousness, taking the markets even higher for the year.
