U.S. stocks edged up modestly but closed at new highs for the year on Monday, as investors look forward to key economic data and the Federal Reserve's interest rate policy decision later this week.
All eyes will be on the Consumer Price Index (CPI) on Tuesday, with expectations of unchanged headline inflation for November. The Producer Price Index (PPI) report follows on Wednesday. Both reports will be crucial to the Fed's final interest rate decision of the year.
Market watchers believe the Fed may have reached the end of its rate hike cycle, potentially paving the way for cuts in the first half of 2024. This anticipation has fueled a surge in equity prices in the past few weeks.
The Dow Jones Industrial Average gained 157.06 points, or 0.43 percent, to close at 36,404.93, while the S&P 500 climbed 18.07 points, or 0.39 percent, to 4,622.44. Tech stocks also edged up, with the Nasdaq Composite rising 28.51 points, or 0.20 percent, to 14,432.49, marking its highest closing level since April 2022.
A robust jobs report on Friday sparked hope that the Fed could achieve a "soft landing" for the U.S. economy, burdened by high borrowing costs. This optimism translated into a strong week for the major indices, their sixth consecutive week of gains.
Both the S&P 500 and Nasdaq closed at their highest levels since early 2022. Additionally, the S&P 500 capped its longest streak of weekly gains since late 2019
The semiconductor sector climbed, with the PHLX semiconductor index (.SOX) reaching its highest level since early January 2022, closing 3.4 percent higher. This growth was spearheaded by Broadcom's (AVGO.O) 8.99 percent leap.
Nike (NKE.N) experienced a 2.33 percent surge, contributing to the Dow's upward trajectory. This positive performance followed Citigroup's upgrade of the stock's rating from "neutral" to "buy," indicating increased investor confidence in the athletic apparel giant.
Cigna (CI.N) saw a 16,68 percent jump in its share price following reports that the health insurer had ended its pursuit of acquiring rival Humana (HUM.N). It also announced a $10 billion share buyback plan, further fueling investor interest. In contrast, Humana shares experienced a modest decline of 1.04 percent.
Among other movers, Macy's (M.N) shot up 19.44 percent following news that an investor group, comprising Arkhouse Management and Brigade Capital, submitted a $5.8 billion bid to take the department store chain private. Sources close to the matter confirmed that Macy's board is evaluating the proposal.
End-of-year economy predictions
Markets have largely factored in the Fed maintaining current interest rates at Wednesday's announcement. However, uncertainty persists regarding the timing of the first rate cut. Currently, CME's FedWatch Tool indicates a 43 percent probability of a 25 basis point cut by March, rising to nearly 75 percent by May.
Before then, the upcoming inflation report, scheduled for release at 8:30 AM ET, is anticipated to reveal a slight easing in headline inflation to 3.1 percent from October's 3.2 percent annual price gain. Estimates from Bloomberg suggest that consumer prices are expected to remain unchanged for the second consecutive month compared to the previous month.
Bank of America suggests that reduced energy expenses might play a role in a smaller annual increase in headline figures. The bank predicts a 3.5 percent decrease in energy prices from the previous month, following a 2.5 percent decline in October. This drop is expected due to significantly lower gas prices during November.
While headline inflation may show signs of moderation, the "core" inflation picture remains less encouraging. According to Bloomberg data, analysts predict a 4.0 percent annual increase in November, indicating persistent underlying inflationary pressures.
Monthly core inflation is also expected to reach 0.3 percent, exceeding the 0.2 percent rise seen in October. This suggests that price increases, excluding volatile factors like food and energy, are still stubbornly high.