This week, the markets will concentrate on the many important economic reports coming out in the next several days. These reports will paint a clearer picture of the state of the consumers, one of the main driving forces of the U.S. and global economy.
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These and other economic data points will help investors evaluate whether the long-awaited interest rate cuts will be coming when markets currently expect them, in March 2024, or whether they will have to be postponed because of the hotter-than-expected economy.
Last week, the Federal Reserve’s dovish pivot sparked a rally that propelled the markets upward, with many stocks reaching new all-time highs. Last Wednesday, the Federal Open Markets Committee (FOMC) kept interest rates unchanged, in line with expectations. What came as a surprise was the Fed’s “Dot Plot,” a graphic reflection of the FOMC members’ policy stance, which showed that 17 of 19 Fed officials projected that the policy rate would be lower by the end of next year, with the median projection pointing to a total of 0.75% in rate cuts during 2024. While the end of the hiking cycle was as much as certain, the strength of the pivot was a positive shock which propelled stocks upward for the seventh week in a row.
The seven-week bull ride has reminded many analysts of the “Roaring 20s,” the period of strong economic growth and stock-market rally of the 1920s. However, it also raises questions concerning how much more room to run further is left for the stocks, given that the Goldilocks economic scenario, with lower but healthy growth and declining inflation priced into the stocks, wouldn’t warrant the three rate cuts of 0.25% expected by the markets and reflected in the Fed’s “Dot Plot.” Thus, investors are advised to closely follow economic reports, as these can either strengthen the Fed’s easing case, or postpone the pivot to an eased monetary policy.
Here are three economic events that could affect your portfolio this week. For a full listing of all upcoming economic events, check out the TipRanks Economic Calendar.
» Q3 2023 GDP Growth Annualized (third and final estimate) – Thursday, 12/21 – This report, released by the U.S. Bureau of Economic Analysis, will provide a final reading of the U.S. economy’s health in the previous quarter, incorporating fresh data received after the first and second estimates’ release. The third reading is expected to be unchanged from the second, which showed a 5.2% annualized rate of economic expansion.
» November’s Core Personal Consumption Expenditures (Core PCE) – Friday, 12/22 – This report, published by the U.S. Bureau of Economic Analysis, reflects the average amount of money consumers spend monthly, excluding seasonally volatile products such as food and energy. FOMC policymakers use the annual Core PCE Price Index as their primary gauge of inflation. Analysts expect the Core PCE to mimic the disinflation trend seen in the CPI report, slowing to 3.4% from October’s annual rate of 3.5%.
» December’s Michigan Consumer Sentiment Index – Friday, 12/22 – This report, published by the University of Michigan, portrays the results of a monthly survey of consumer confidence levels and consumers’ views of long-term inflation in the United States. The level of confidence affects consumer spending, which contributes about 70% of the U.S. GDP. The index is expected to remain unchanged from November’s level of 69.4.
