Weekly Market Commentary December 11th to December 15th 2023

The final Consumer Price Index (CPI) report of 2023 offered no market-moving surprises. Headline inflation increased by 0.1% for the month versus an expected flat reading. Core CPI (excluding food and energy) was higher by 0.3%, as forecast. On a year-on-year basis, headline CPI was 3.1% and Core 4.0%, both as expected. Energy prices fell 2.3%, including a 6% decline in gasoline prices. Airfares also fell modestly by 0.4%.

The Producer Prices report was equally benign. Headline PPI was unchanged on the month and higher by 0.9% over the past year. Core PPI was also flat and cooler than anticipated, now at 2.0% on a year-over-year basis – the lowest since January 2021.

The Federal Open Market Committee met and voted unanimously to leave short-term interest rates unchanged, as anticipated. Although forward-looking language was unchanged in the post-meeting statement, it was noted that economic growth in the third quarter has slowed from its strong pace. It was also stated that inflation has eased over the past year but remains elevated. No further hikes were priced in to forward projections for the first time since March 2021. The dot plot now points to three cuts in 2024, four in 2025 and three in 2026. This is a looser policy picture than was projected in September.

The S&P 500 Index rallied following the Fed announcement and closed the week higher by 2.5% to 4,719. The Dow Jones Industrial Average reached a new all-time high, closing up 2.9% to 37,305. The Nasdaq Composite also posted stellar gains, higher by 2.8%. Treasury yields plummeted following the Fed revised dot plot release. The 10-Year U.S. Treasury closed the week 31 basis points lower at 3.91% and the 2-Year down nearly the same amount to 4.43%.

Key economic reports next week include Existing and New Home Sales, Housing Starts and Permits, Durable Goods Orders, and an updated Q3 GDP estimate.