As we approach the final Federal Reserve policy meeting of 2024 next week, investors and markets are eagerly anticipating how it will shape the closing days of the year and provide clues for 2025. Alongside this, important inflation figures are expected. Wall Street seems quite confident about the outcome of the December 17-18 meeting, suggesting a high probability that the Fed will trim the benchmark interest rate by a quarter-point, moving it to between 4.25% and 4.50%. This is a slight drop from the current range of 4.50% to 4.75%.
Beyond the interest rate decision, the Fed will also release its quarterly "dot plot," which offers insights into policymakers’ views on inflation, the job market, and future rate cuts. Current market expectations are leaning towards a dovish approach, predicting several more rate reductions that could bring rates down to between 3.50% and 4.0%. If these projections pan out, they could give the stock market a positive nudge, which has faced some challenges this week.
Joe Tigay, who manages the portfolio at the Rational Equity Armor Fund, suggests that if interest rates dip, we might see the dollar weaken and tech stocks gain momentum. He believes, "It’s the Fed’s duty to normalize rates, and they’re likely to continue on that path for now."
This week, both the Dow Jones and S&P 500 took a step back from their year-end rally, falling 1.6% and 0.6%, respectively, by Thursday’s close. In contrast, the Nasdaq Composite, known for its tech focus, eked out a small increase of 0.2%, maintaining a winning streak for the week.
Next on the agenda, the Fed’s favored measure of inflation, the PCE index, comes out post-meeting on Friday. FactSet surveys indicate expectations for it to decrease slightly on a monthly basis to 0.17% from 0.24%, though it might edge up annually to 2.5% from 2.3%. Core PCE, excluding food and energy, is projected to rise by 0.22% monthly, down from 0.27%, with the annual rate ticking up to 2.9% from October’s 2.8%.
Persistent inflation figures could pose challenges for the markets, already considered by some as overpriced. Investor concerns linger over potential inflation spikes next year, particularly if President-elect Donald Trump implements policies such as mass deportations and hefty tariffs. In light of inflation risks, some investors suggest more defensive strategies. David Kelly from JPMorgan advises a diversified 50-30-20 portfolio, comprising 50% stocks, 30% bonds, and 20% alternatives, aiming to capture varied returns.
Despite recent inflationary pressures, investors remain optimistic about the overall economic resilience. "I believe we’re still in a bull market," Tigay states. "Inflation isn’t a deal-breaker for me as long as economic growth persists."
Adding to the excitement next week, major corporations will announce their financial results. Keep an eye out for Micron Technology’s earnings on Wednesday, with Nike, FedEx, and Darden Restaurants reporting the following day.
Here’s what the week ahead looks like:
- Monday, Dec. 16: 8:30 a.m. Empire State Index; 9:45 a.m. PMI Composite, Manufacturing, and Services preliminary data.
- Tuesday, Dec. 17: 8:30 a.m. Retail Sales and Capacity Utilization; 9:15 a.m. Industrial and Manufacturing Production; 10 a.m. Business Inventories, NAHB Housing Market Index. Earnings: Amentum Holdings.
- Wednesday, Dec. 18: 8:30 a.m. Building Permits, Current Account, Housing Starts; 2 p.m. FOMC Meeting, Fed Funds Target Upper Bound. Earnings: Micron Technology, Lennar, General Mills.
- Thursday, Dec. 19: 8:30 a.m. Continuing and Initial Jobless Claims, GDP data; 10 a.m. Existing Home Sales, Leading Indicators; 11 a.m. Kansas City Fed Manufacturing Index. Earnings: Nike, FedEx, Conagra Brands, Darden Restaurants, CarMax.
- Friday, Dec. 20: 8:30 a.m. Core PCE Deflator, PCE Deflator, Personal Consumption Expenditure, Personal Income; 10 a.m. Michigan Sentiment final.
Stay tuned as these developments unfold, providing fresh data to strategize and insight into economic health.
