A rally in the broad U.S. stock market on Friday turned an otherwise mixed week for stocks into a solid performance. The stock market digested November’s robust gains and rallied strongly amid falling bond yields on November’s last trading day.
Market sentiment remained positive as inflation showed ongoing signs of softening, boosting hopes that the Fed may be able to end its rate hikes and consider rate cuts sometime next year. The declines in bond yields reflect that the financial markets are positioning for an interest rate cut soon, even brushing off Fed Chair Powell’s Friday comments suggesting it was premature to consider monetary loosening. Investors also welcomed news of solid spending in early holiday sales reports.
Diving deeper into the status of inflation: the Personal Consumption Expenditures Price index (PCE), which is the Fed’s preferred measure of inflation, was released last week, showing core PCE (excludes energy and food) rose 0.2% in October and 3.5% from a year ago. Both were lower than September’s readings of 0.3% and 3.7%, respectively. Perhaps most notably, core prices rose at a 2.5% annualized rate over the last six months, close to the Fed’s target rate and a big improvement over the previous six-month annualized rate of 4.5% ending April.
We will continue to watch these economic trends as we help our clients manage their portfolios in the context of their long-range financial planning. Let us know if we can do anything for you or your family as we head into year-end.