The Zhitong Finance App learned that this week will usher in a number of economic developments. Among them, the Federal Reserve's last interest rate decision of the year is the most prominent. The market generally expects the Fed to cut interest rates by 25 basis points. In addition, US retail sales data for November, the personal consumption expenditure (PCE) index, an inflation indicator favored by the Federal Reserve, and the latest data on service and manufacturing activity will also be released this week. On the corporate side, Micron Technology (MU.US), Nike (NKE.US), FedEx (FDX.US), and Fiesta Cruises (CCL.US) will announce quarterly earnings reports.

Over the past week, the Nasdaq Composite Index was the only one of the three major stock indexes to close higher, up more than 0.3%. Meanwhile, the S&P 500 index fell by about 0.6%, while the decline in healthcare stocks caused the Dow Jones Industrial Average to drop nearly 2%. The Dow Jones Index has been falling for seven consecutive trading days, the worst record of consecutive losses since February 2020.

This week, the Federal Reserve will make its next interest rate decision on December 18. The market will pay close attention to Federal Reserve Chairman Jerome Powell's views on the future path of 2025 at a press conference held at 2:30 p.m. EST on Wednesday.

What about after interest rate cuts?

According to the Chicago Mercantile Exchange (CME) FedWatch tool, the market anticipates a 97% chance that the Federal Reserve will cut interest rates by 25 basis points at this Wednesday meeting. However, given that recent data shows that the US economy is growing steadily, the labor market is not cooling down rapidly, and the path for inflation to reach the Fed's 2% target is bumpy, many people expect the Fed to cut interest rates in 2025 lower than initially anticipated.

The Federal Reserve's latest Economic Forecast Summary (SEP) will be the key to watch. It includes a “bitmap” depicting policymakers' expectations of future interest rates, as well as Powell's comments at the press conference.

When the Federal Reserve released the bitmap in September, the median market forecast for the federal funds rate until the end of 2025 was 3.25% - 3.5%. According to Bloomberg data, compared to the four rate cuts predicted in September in 2024, the market expects to cut interest rates only twice next year.

Michael Feroli, chief US economist at J.P. Morgan Chase, wrote in a report to clients: “We believe that this year's economic forecast will show better growth and stronger inflation. The median interest rate forecast point will be revised to three interest rate cuts next year, rather than four interest rate cuts this year as predicted in September.”

Bank of America economist Aditya Bhave (Aditya Bhave) wrote in a report to clients that Powell may point out “the pace of interest rate cuts is slowing down” at a press conference, including suspending the interest rate cut cycle in January.

retail data

Before the Federal Reserve makes a decision on Wednesday, officials will get the latest data on consumer conditions from the November retail sales report. Economists estimate that retail sales increased 0.5% in October compared to the previous month. Retail sales control group data (excluding several unstable categories such as gasoline, which directly affects gross domestic product (GDP)) is also expected to grow by 0.4%.

Bank of America's US Economics team believes this report will reflect a strong start to the holiday shopping season. “Online retail spending was particularly strong during Thanksgiving,” the team wrote in a note to customers last Friday. “In fact, despite the postponement of Thanksgiving, holiday spending has already surpassed the cumulative level of 2023. As a result, we expect the November retail sales report to be very strong, with retail sales growth of 0.5% month-on-month, excluding automotive and core control categories.”

Inflation updates

Last week, consumer price index (CPI) and producer price index (PPI) readings both showed that inflation made little progress towards the Federal Reserve's 2% target. However, many economists believe that the details of these reports show encouraging signs and should make the inflation figures announced by the Federal Reserve this Friday less worrying.

Economists expect annual “core” personal consumption spending (excluding volatile food and energy categories) to reach 2.9% in November, up from 2.8% in October. However, economists predict that compared with the previous month, “core” personal consumption expenditure will increase by 0.2%, down from the 0.3% increase in October.

Michael Gapen (Michael Gapen), chief US economist at Morgan Stanley, wrote in a report to clients last Friday: “In our opinion, the November inflation data should be reassuring, that is, the slowing of inflation continues.” “Although the overall and core CPIs were slightly higher than our expectations... we found the details of the report favoring continued lower inflation in the short term.”

Poor market breadth

The S&P 500 index fell more stocks than rising stocks for 10 consecutive trading days, the longest since September 2001. However, in the period up to December, the S&P 500 index rose by about 0.3%. At the same time, the equal weight index of the S&P 500 index fell by more than 3%, and the index was not unduly affected by the trend of large cap constituent stocks.

Savvy traders should look out for at least a few warning signs about the overall health of the market. Steve Sosnick (Steve Sosnick), chief strategist at Yingtou Securities, wrote in a report to clients on Thursday, “Until now, market problems have only been minor, such as “sneezing” or a lack of participation,” “but if some symptoms are ignored, some symptoms may develop into more serious problems.”

Sosnick's view is that currently, the rise in large technology stocks in the market has kept the benchmark index stable. On Wednesday, as Alphabet (GOOGL.US), Tesla (TSLA.US), Meta (META.US), and Amazon (AMZN.US) all surged to record highs, the Nasdaq Composite closed above 20,000 points for the first time in history

Kevin Gordon, senior investment strategist at Carson Wealth Management, said that this market dynamic comes as investors are digesting signs of sticky inflation, and the Fed's interest rate cut may be lower than initially anticipated, although there will be no “surprises” next year.

Gordon said, “If interest rates stay at a higher level for a slightly longer period of time than the market generally expected, then companies that make a net profit from rising interest rates are likely to perform well.” At the same time, he pointed out that the “Big Seven” stocks fit this description.