Weekly Market Insights: Stocks Rally on Fed, Inflation News

Markets reacted positively last week to cooler inflation and the idea of potential rate cuts next year, adding to the gains of the market’s year-end rally.

The Dow Jones Industrial Average rose 2.92%, while the Standard & Poor’s 500 gained 2.50%. The Nasdaq Composite index picked up 2.85% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, tacked on 2.75%.^1,2,3

Rally Continues

Stocks gathered momentum last week after upbeat news from two key inflation reports. But the outcome of the Federal Open Market Committee (FOMC) meeting on Wednesday powered the week’s advance. The combination of the FOMC signaling three rate cuts in 2024 and dovish comments by Fed Chair Powell led to a sharp drop in bond yields and a spike in stock prices, with the Dow Industrials closing above 37,000 and setting an all-time high.⁴

The rally continued the following day as beneficiaries of lower rates, such as smaller capitalization stocks and real estate, rallied. A solid retail sales number, which reflected a strong consumer and supported the soft landing thesis, also boosted enthusiasm.

Inflation Eases

The anxiously awaited read on November inflation came close to market expectations, with a 0.1% increase over October and a year-over-year increase of 3.1%. Core inflation, which excludes energy and food prices, came in a bit hotter, rising 0.3% month-over-month and 4.0% from a year ago. A 2.3% decline in energy costs helped offset a 2.9% jump in food prices. Shelter prices remained stubbornly high, rising 0.4% from October and 6.5% from last November.⁵

The inflation news was better on wholesale prices, tracked by the Producer Price Index (PPI). Producer prices were unchanged in November and higher by just 0.9% year-over-year. Excluding energy and food, the monthly increase was also unchanged.⁶

This Week: Key Economic Data

Tuesday: Housing Starts.

Wednesday: Consumer Confidence. Existing Home Sales.

Thursday: Gross Domestic Product (GDP). Jobless Claims. Index of Leading Economic Indicators.

Friday: Durable Goods Orders. Personal Income and Outlays. New Home Sales. Consumer Sentiment.

^{Source: Econoday, December 15, 2023
The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.}

This Week: Companies Reporting Earnings

Tuesday: FedEx Corporation (FDX) 

Wednesday: Micron Technology, Inc. (MU), General Mills, Inc. (GIS)

Thursday: Nike, Inc. (NKE)

^{Source: Zacks, December 15, 2023
Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.}

“I never try to please a certain audience. I think that’s disastrous.”

– Charles Schulz

Tax Benefit and Credits: FAQs for Retirees

Lots of questions can come up about income taxes after one has retired. Some common types of taxable income include military retirement pay, all or part of pensions and annuities, all or part of individual retirement accounts (IRA), unemployment compensation, gambling income, bonuses and awards for outstanding work, and alimony or prizes. A few examples of non-taxable income are veteran’s benefits, disability pay for certain military or government-related incidents, worker’s compensation, and cash rebates from a dealer or manufacturer of an item you purchased.

*This information is not intended to substitute for specific individualized tax advice. We suggest you discuss your specific tax issues with a qualified tax professional.

Tip adapted from IRS.gov⁷

Practicing Gratitude in the New Year

Instead of beginning the new year with a list of resolutions, start by examining the good things already in your life by practicing gratitude.

Psychologists have defined gratitude as a positive emotional response to receiving a benefit from someone. In positive psychology, gratitude is the human way of acknowledging the good things in life. Thankfully, you can learn gratitude if it does not come innately.

There are benefits to practicing gratitude, especially in times of stress and uncertainty. Gratitude invites positive emotions that can have physical benefits through the immune and endocrine systems. Research shows that when we think about what we appreciate, the parasympathetic or calming part of the nervous system is triggered, which can have protective benefits for the body—including decreasing levels of the stress hormone cortisol and increasing oxytocin, the bonding hormone involved in relationships that make us feel good.

There are a few great ways to get started today and practice gratitude in your own life:

• Write thank you notes
• Keep a gratitude journal
• Follow-up with family and friends
• Give back to your family, friends, and community
• Pay kindnesses forward

Tip adapted from PsychologyToday.com⁸

Ray slipped off of a 30-foot escalator and landed on a sidewalk. He was embarrassed, yet uninjured. How could this be?

Last week’s riddle: My first is twice in apple but not once in tart. My second is in liver but not in heart. My third is in giant and also in ghost. Whole I’m best when I am roast. What am I?  Answer: A pig.

Mountain lion in the southwest USA

Footnotes and Sources

^{1. The Wall Street Journal, December 15, 2023}

^{2. The Wall Street Journal, December 15, 2023}

^{3. The Wall Street Journal, December 15, 2023}

^{4. CNBC, December 13, 2023}

^{5. CNBC, December 12, 2023}

^{6. CNBC, December 13, 2023}

^{7.  IRS.gov, December 11, 2023}

^{8. PsychologyToday.com, December 11, 2023}