Equity Markets Fell Last Week

Stocks pulled back last week as tech shares pared gains from the prior week. The NASDAQ posted a minimal gain, while the S&P 500 retreated from recent record highs. Nine of the 11 market sectors declined last week, with only consumer discretionary and communication services advancing. Investors will be paying close attention to the Federal Open Market Committee, which meets December 17-18, at which time the Committee will have to decide if the recent uptick in price inflation is sufficient to defer another interest rate cut. While the November Consumer Price Index and Producer Price Index came in as expected, data from both sources showed inflationary pressures moved further away from the Federal Reserve’s 2.0% target. This trend, coupled with a solid labor market, opens the possibility that the Committee may decide to wait until the January 2025 meeting before considering a further interest rate reduction. Nevertheless, the consensus remains that the Fed will reduce the federal funds rate by 25.0 basis points when it meets this week.

CPI Increased in November

The Consumer Price Index posted the largest gain in seven months after climbing 0.3% in November. For the 12 months ended in November, the CPI advanced 2.7%, up 0.1 percentage points from the comparable period ended in October. Core prices, excluding the more volatile food and energy prices, also advanced 0.3% last month and 3.3% over the last 12 months. Categories that saw price increases in November include shelter, used cars and trucks, household furnishings and operations, medical care, new vehicles and recreation. Shelter costs rose 0.3% for the month and 4.7% for the year. While the latest increases in shelter costs showed some moderation, at nearly 40% of the total basket of goods and services, shelter costs continue to keep the CPI above the Fed’s +2.0% target.

Eye on the Week Ahead

The Fed meets for the last time this year. Many expect the Fed to drop interest rates by 25.0 basis points. The third and final estimate of gross domestic product for the third quarter is also out this week. The last reading had the economy expanding at an annualized rate of 2.8%.