It’s holiday season, so why not keep the party going? ’Tis the season, and so forth — right? In the market’s case, call it a “pivot party,” which got started last Wednesday afternoon as the Federal Open Market Committee (FOMC) concluded monetary policy keeping interest rates steady with a press conference featuring Fed Chair Jerome Powell openly discussing the idea of cutting interest rates in 2024.
Much of the lid that had been kept on the market — particularly in small-cap financials on the Russell 2000 — had been doing so because a.) an earlier dot-plot said one more 25 basis-point (bps) hike was in the cards before 2023 was over, and b.) no fewer than three interest rate cuts were inferred by the Fed by the end of next year. Of course, the market being the market, it’s been trading ever since like, “Maybe it will be more than three cuts.”
Too early to tell now, but in the meantime, we’re seeing the Dow and S&P 500 climbing to new all-time highs. That old adage that the year before a presidential election is always best for the stock market has most definitely borne out in 2023: the Dow is +12.58%, the S&P +23.96%, the Nasdaq easily leads the way, +43.50%, and the small-cap Russell +13.42%. Markets are currently looking for an eighth-straight week higher ahead of Christmas Week, which will commence trading on Tuesday on low seasonal volume expected.
The fact that we can be at these historic high levels at the same time Japan’s Nippon Steel is buying out U.S. Steel X for $14.9 billion, or $55 per share. This is well ahead of the earlier offer from Cleveland-Cliffs CLF for $35 per share back in August. Considering how crucial U.S. Steel had been in the 20th century in the development of the U.S. becoming the world’s greatest superpower, this transaction is comparably a minor blip today. It also says a mouthful about how America has gone from a goods-producing nation to a services-based one over time.
Earlier today, we saw the North American Homebuilders (NAHB) Confidence Survey take a meaningful step forward, with a December print of 37 from the expected 36 and the previous month’s 34, which was the lowest print since December of last year. With the prospect of lower interest rates potentially loosening up mortgage levels next year, there may be growing optimism that the housing market can see a bounce-back in 2024, with excess pent-up demand in housing already.
Tomorrow morning, we’ll see another housing-related report: Housing Starts and Building Permits for November. Both as of now are expected to tick down a tad, from 1.37 million the previous month to 1.36 million on Starts, and from 1.49 million Permits in October to 1.48 million last month. Any surprise to the upside would likely further the narrative that the housing market is expected to thaw out in a meaningful way for the U.S. economy.
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