During the past week, US equity indexes experienced mixed trading as investors weighed the sustainability of a recent disinflationary trend that has prompted focus from the Federal Reserve towards the labor market. This ongoing debate has raised questions about the future policy direction, especially as reflected in the upcoming dot plot and current market valuations. The S&P 500 closed at 6,051.09, a slight decrease from 6,090.27 the previous week, while the Nasdaq Composite also saw a minor decline, settling at 19,926.72 compared to 19,859.77 the week prior.
In contrast, the Dow Jones Industrial Average concluded the period at 43,828.06, down from 44,642.52. In sector performance, communication services took the lead. Noteworthy gainers in this segment included market giants such as Broadcom, Alphabet, and Tesla. Furthermore, data released indicated a 0.3% rise in the consumer price index for November, an increase from 0.2% in the previous four months.
On an annual basis, inflation figures rose to 2.7%, slightly above October’s 2.6%. Both inflation metrics were generally in line with previous expectations. Core inflation remained unchanged at 0.3%, annually resting at 3.3%. Similarly, the producer price index reported a 0.4% increase in November, surpassing the anticipated 0.2%.
Following an upward revision, October’s index stood at 0.3%. On an annual basis, the PPI increased by 3%, above the 2.6% forecast. Deutsche Bank noted that despite the upbeat producer price index figures, core elements and components influencing core PCE showed slight softness. The annual core PPI did come in slightly above expectations at 3.4% compared to the predicted 3.2%, leading to increased uncertainty regarding the speed of potential rate cuts in the coming year. The yield on the 10-year US Treasury bond has been on an upward trend, marking gains for five consecutive days and reaching 4.4% on Friday.
This development reflects a combination of factors including fresh supply, the impacts of tariffs, tax reductions, and the Fed’s ongoing policies. As investors keenly observe the 4.5% threshold on the 10-year yield ahead of the forthcoming policy announcement on Wednesday, expectations indicate a 97% chance of a rate cut.
However, the main focus will be on forward-looking signals, given that only two further cuts are anticipated for 2025. The dot plot, which outlines policymakers’ rate expectations, is expected to provide crucial insights and noteworthy commentary on the future trajectory of inflation..