Stocks Extend Bull Run on Soft Landing Narrative: Markets Wrap

(Bloomberg) -- Financial assets from stocks to bonds notched another winning week as data readouts only reinforced Wall Street’s conviction in early and deep rate cuts next year. 

After a choppy low-volume session ahead of the Christmas holiday, the S&P 500 notched an eight-week winning streak — the longest in more than five years on signs price pressures in the US were easing. The Nasdaq 100 and a global gauge of equities logged equally lengthy runs — for the tech-heavy Nasdaq it was the longest since July 2021. US bonds booked a fourth-straight week of gains — their best streak since March.

“The soft landing narrative is fully in charge: The economy remains strong while inflation keeps trending down,” Louis Navellier of Navellier & Associates wrote. The veteran growth investor expects the year to end at highs, “the only ones with lumps of coal in their stocking this season are the bears.”

The S&P 500 rose a scant  Friday as a slump in Apple Inc.’s shares weighed on equities gauges. The iPhone-making giant has added nearly $1 trillion in market value this year. Nike Inc. was also a drag, dropping  Friday after the sports apparel maker flagged a weaker sales outlook and a cost-cutting plan.

The Nasdaq nudged up , after setting record highs earlier in the week. Things took a dramatic swing on Wednesday when a late-in-the-day swoon was blamed on so-called zero-day, or ODTE, options.

The Supreme Court refusing to push forward a decision on former President Donald Trump’s immunity from prosecution may also have briefly stoked market volatility Friday.

Some on Wall Street are positioning for further stock gains ahead as the session kicked off the start of the “Santa Claus rally” — a seasonal trend where equities tend to climb into the first few days of the new year.

“Since 1928, the market has rallied an average of 1.7% between the last five days of December and the first two days of the new year, with a 79% positivity rate,” Craig Johnson, Piper Sandler’s chief market technician wrote. 

Such an advance would put the gauge back within reach of an all-time high. He expects any pullbacks on the S&P 500 to be shallow with the gauge staying above its early December highs.

Stocks were initially buoyed by Friday data showing the Federal Reserve’s preferred underlying inflation metric barely rose in November. 

That helped cement investor expectations for earlier and deeper interest rate cuts next year, despite pushback from several Fed policymakers this week. Swaps traders are betting interest rates will be eased by more than 150 basis points in 2024, double the Fed’s forecast. 

Global bonds were primed for another win as of Thursday, data compiled by Bloomberg show. Treasuries were mixed in Friday trading with the yield on the US 10-year bond hovering around 3.9%. 

“We’ll argue the market was biased for a downside surprise which has translated to a somewhat counterintuitive price response” Ben Jeffery of BMO Capital Markets wrote after Friday’s PCE data. “We expect the proximity to the early close and long weekend will usher in a long winter’s nap for Treasuries.” 

Additional reports Friday showed consumers were also gaining conviction that inflation in the world’s largest economy was on the right track. At the same time a reading on new-home sales in the US unexpectedly tumbled, though it may only be a temporary setback for an expected housing market recovery.

The dollar steadied amid a weekly rout that had the greenback trading around five-month lows against its Group-of-10 rivals. In commodities, oil prices posted their biggest weekly gain since October, as shippers took lengthy detours to avoid militant attacks in the Red Sea.

Some of the main moves in markets Friday: 

Stocks

• The S&P 500 rose 0.2% as of 4 p.m. New York time
• The Nasdaq 100 rose 0.1%
• The Dow Jones Industrial Average was little changed
• The MSCI World index rose 0.2%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.1012
• The British pound rose 0.1% to $1.2703
• The Japanese yen fell 0.2% to 142.47 per dollar

Cryptocurrencies

• Bitcoin fell 0.7% to $43,683.67
• Ether rose 2.9% to $2,314.78

Bonds

• The yield on 10-year Treasuries was little changed at 3.89%
• Germany’s 10-year yield advanced one basis point to 1.98%
• Britain’s 10-year yield declined two basis points to 3.50%

Commodities

• West Texas Intermediate crude fell 0.4% to $73.58 a barrel
• Spot gold rose 0.4% to $2,053.32 an ounce

This story was produced with the assistance of Bloomberg Automation.

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