Global stock indexes mostly rose while the U.S. dollar dipped to a near five-month low on Friday. This was driven by cooler-than-expected U.S. inflation data, which supported the view that the Federal Reserve could cut borrowing costs in the new year. The Commerce Department report showed that U.S. prices fell in November for the first time in over 3-1/2 years, pushing the annual increase in inflation further below 3%.
Stock investors have cheered the recent signs from the Federal Reserve on the outlook for interest rates. After its policy meeting on December 13, the Fed signaled that it had reached the end of its tightening cycle and opened the door to interest rate cuts in the coming year. This has contributed to the U.S. benchmark S&P 500 inching closer to its all-time closing high.
Reaching a new closing high would have confirmed that the benchmark index had been in a bull market since closing at the bear market floor in October 2022. This positive sentiment is further supported by the declining inflation, as Tim Griskey, senior portfolio strategist at Ingalls & Snyder in New York, explains, “The core being below expectations and the top line also being below expectations is positive for the market, indicative that inflation is declining. It’s more evidence that this is a good environment for investing.”
The Dow Jones Industrial Average fell slightly while the S&P 500 and the Nasdaq Composite made modest gains. As the session progressed, all three indexes moved closer to flat after an initial rally. Despite this, the S&P 500 is now within 1% of its record close reached in January 2022. Moreover, all three major U.S. stock indexes registered an eighth straight week of gains, marking their longest winning streaks since 2017 and 2019.
While the consensus is that the Federal Reserve will cut rates in March, some experts express caution. Alan Lancz, president of Alan B. Lancz & Associates Inc., an investment advisory firm based in Toledo, Ohio, states, “To me, you’re borrowing against 2024 gains a little bit with this rally.” He suggests that the market may be too optimistic and investors are relying on future gains that may not materialize.
The positive sentiment in the U.S. stock market has also influenced global markets. The pan-European STOXX 600 index and MSCI’s gauge of stocks across the globe both rose by 0.14%, marking an eighth straight week of gains for the MSCI index.
The U.S. dollar weakened against major currencies, reaching a near nine-year low against the Swiss franc. The dollar index was last down 0.08% at 101.7, after dipping as low as 101.42, its lowest since late July. The index is on pace to finish the year down about 2%.
The U.S. inflation data, indicating a decline in prices, has sparked optimism in the stock market and led to a weaker U.S. dollar. Investors are hopeful for interest rate cuts in the coming year, which would further boost the market. However, some experts urge caution, warning against over-optimism and borrowing against future gains. The impact of these developments is also felt globally, with stock indexes in Europe and across the globe experiencing positive movements. The performance of the stock market and the future trajectory of interest rates will continue to be key factors to watch in the coming year.