Broker Check

McKnight Weekly Market Insights: Stocks Rally on Fed, Inflation News

December 18, 2023

A boy on horseback pulls a felled Christmas tree through a snowy landscape towards home.

Christmas Memories, Christmas Blessings:

What is your favorite Christmas memory? What feelings are associated with this treasured memory?

As a young man, maybe even as a preteen, I remember riding Old Mike (the family horse) across the river, riding through the woods, looking for the perfect Cedar tree for the family’s Christmas tree. Old Mike was incredibly gentle and almost always a good sport, even when tasked with dragging the newly cut Christmas tree for over a mile, back to our home.

That was a very simple time for me. Quite unlike the complicated, busy life I now live.

I pray that your Christmas is filled with great joy. That any sadness that may darken your season be eclipsed by all the good things Christmas can bring.

Whether mourning the loss of a loved one, a relationship that has hit a rough spot, or some other circumstance that seeks to steal your joy, I pray that Christmas and its true meaning of redeeming a “weary world” will be yours.

Thank you for allowing McKnight to serve you, and we pray that 2024 will bring even more incredible blessings to you and yours.

- Edwin McKnight

From the McKnight Advisory Group family, we wish you a Merry Christmas and a Happy New Year. This is a friendly reminder that our office will be closed on Christmas and New Year's Day. Our following newsletter will be published on the 27th.

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Global economies have experienced a material inflation slowdown relative to their respective peaks late last year. This demonstrates substantial progress toward the 2% inflation target set by major central banks and has played a vital role in their recent decisions to hold policy rates steady. In the race to slow the pace of inflation in the absence of a recession, central banks are in the final stretch, as the finish line may be closer than previously expected. To learn more, click here to check out the most recent Market Monitor.

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 Wednesday Federal Open Market Committee (FOMC) meeting 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

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, December 11, 2023, December 11, 2023

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.

The forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.

The market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.

The Dow Jones Industrial Average is an unmanaged index that is generally considered representative of large-capitalization companies on the U.S. stock market. Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of technology and growth companies. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) and serves as a benchmark of the performance of major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.

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