Yes, the Federal Reserve will most likely cut interest rates in 2024, which is great for stocks.
And 2024 is an election year, which is also generally good for stocks.
So does that mean stocks are forecast to rise in 2024? One would like to say “mostly,” but there will be some volatility due to what will certainly be a bitter election campaign and possibly due to issues outside the United States.
Meanwhile, many of the pieces that should support stocks and the economy now and next year are already in place, including:
Related: Fed meets markets with first signs of interest rate cuts in 2024 as inflation slows; stock rise
A Fed bias toward lowering rates. How fast is a different question? Financial markets are leaning toward a rate cut in March, but the Federal Reserve doesn't like to act that quickly unless economic conditions are dire. And many veteran Fed watchers are leaning toward June for the first cut in the central bank's key federal funds rate. The rate, from which all US rates are built, is now 5.25% to 5.5%.
Interest rates have already been falling. The 10-year Treasury yield hit a high of 5% in late October. It ended Friday at 3.914%. Mortgage rates are now below 7% from a high of 8% in early October.
Oil prices have been falling. West Texas Intermediate crude oil briefly reached $95 a barrel on September 28. It has fallen more than 24% to $71.78 on December 15 and even reached $68.95 on December 12. AAA National Average Price gasoline cost $3,075 on December 16, 21% less than September and 3.8% less than a year ago.
The amazing resilient economy. Most Wall Street economists (including those at the Federal Reserve) expected a recession in 2023 and were surprised it didn't happen. Unemployment is still below 4%. (Some are talking about a recession next year.)
Related: What does falling interest rates mean for investing in bonds and CDs?
The breakout in interest rates in October transformed a traditional decline rally into a broad and powerful rise.
The purchase boosted the Dow Jones Industrial Average (^DJI) – Get a free report to all-time highs above 37,000 and produced new 52-week highs for the Standard & Poor's 500 Index (^EN) – Get a free reportNasdaq Composite Index (^COMPX) – Get a free reportthe Nasdaq-100 index (^NDX) – Get a free report and small cap Russell 2000 Index.
boeing (licensed in letters) – Get a free report jumped 13% on the week. Walgreens Boots Alliance Pharmacy Operator (AMB) – Get a free report jumped 21%. Also hitting 52-week high: Costco Wholesale (COST) – Get a free reportGeneral Energy (G.E.) – Get a free reportpaint manufacturer Sherwin Williams (SHW) – Get a free report and Uber technologies (UBER) – Get a free report.
Ark Innovation ETF (ARKK) – Get a free report it rose 5.5% and is now up 63.6 so far this year.
There are a few things to warn about that could happen over the new month or two.
- This late fall rally has been so big that the US market looks frothy. You can see it in all the indexes indicated above. Its relative strength indices are all above 70, and a reading above 75 suggests a pullback is coming. The Dow's RSI is at 85, a level last seen in January 2018, and a sell-off quickly ensued. Relative strength measures the price trend and the speed of changes. Those who observe these readings know that the upward trend is very intense.
- Oil and gasoline prices, which have fallen since September, will not fall indefinitely. They will typically advance sometime after the first of the year, when refineries begin producing gasoline for the northern hemisphere's summer driving season. Additionally, the Organization of the Petroleum Exporting Countries would like to cut production among its members to keep crude oil prices high. What is not clear is whether all OPEC member countries and countries that align with the cartel will comply with the rules.
- There are signs of a slowdown in the US economy. News about layoffs has become more frequent, especially in technology, for example, and business failures. The commercial and residential real estate markets have been weak all year. The question is whether real estate problems can damage the banking system, as in 2008, and derail the economy.
- Geopolitical tensions can never be ruled out.
Related: Forget Theft, Target, Walmart and Big Retail Have a Bigger Problem
In theory, next week should be relatively quiet before the Christmas holidays. Trading slows down on Thursday and Friday, perhaps earlier.
That said, there are some important financial and earnings reports that will be closely examined.
The big profits
- Fedex (FDX) – Get a free report. Tuesday. The package delivery giant has performed well all year and its profits have increased. Fiscal second-quarter earnings are estimated at $4.14 per share, up from $3.18 a year ago. The stock is up 62% in 2023 and is at its highest level since 2021.
- FactSet Research Systems (FDS) – Get a free report. Tuesday. The consensus earnings estimate for financial data is $4.10, up from $3.99 a year ago. steel box (SCS) – Get a free report, Tuesday. Analysts expect the office furniture maker to report 18 cents per share, up from 20 cents a year ago.
- Micron technology (IN) – Get a free report. Wednesday. The consensus estimate for the chipmaker is a loss of $1.14 per share, down from a loss of 15 cents a year. A beat will encourage investors. In fact, Micron stock is up 62% this year.
- Nike (OF) – Get a free report. Thursday. The sports apparel and equipment giant is expected to earn 84 cents in the fiscal second quarter, down one cent from a year ago. However, the stock rose 27% in the fourth quarter, after dragging for much of the year. The franchise is powerful and profits are increasing because inventories are smaller and Nike can reduce promotions.
The great economic reports
The government and others will issue widely seen economic reports this week. These include:
Tuesday: Start of housing and construction permits. from the Census Bureau. It's probably too early to see if interest rates that were falling before last week's Fed meeting will affect the reports. Economists expect slight declines in a depressed industry. In October, construction starts decreased by 11.3% compared to the previous year. Permits increased slightly for single-family homes and multi-family units. Building permits offer a glimpse of what awaits builders, buyers and sellers.
Wednesday: Refinancing and mortgage applications of the Mortgage Bankers Association. If there is a rebound in housing, you should start to see it here.
Friday: Personal Consumption Expenditure Index of the Department of Commerce. This report is widely studied at the Federal Reserve because it tracks consumer spending patterns more clearly than, for example, the Consumer Price Index. A low PCE inflation reading will reinforce the Federal Reserve's decision to stop raising interest rates.
