As Americans entered the traditional shopping season at the end of the year, the US stock market ended the dreamy journey of November with a strong rally, and the Dow and S&P ushered in a new milestone. Investors price their expectations that President elect Trump's pro business policies may stimulate economic growth and corporate profits. At the same time, the expectation of interest rate cuts has driven funds to continue flowing into the market, and some institutions have begun to raise their year-end and next year's stock index targets.
Will the Federal Reserve cut interest rates by 25 basis points in December?
The main data released last week showed that US inflation indicators rebounded as expected, consumer spending increased, and the job market remained lukewarm.
The US Department of Commerce reported that the overall personal consumption expenditure (PCE) price index rose 2.3% year-on-year in October, with a growth rate 0.2 percentage points faster than September. The core PCE, excluding food and energy, increased to 2.8% year-on-year, marking the first rebound since June. Meanwhile, consumer spending increased by 0.4% in October. The monthly savings rate was 4.4%, an increase from the previous month's 4.1%.
Bob Schwartz, a senior economist at Oxford Economics, stated in an interview with First Financial News that consumption is largely supported by healthy labor demand, and household savings have rebounded once again. This holiday shopping season looks quite good, although high prices are still squeezing budgets. He expects that, considering strong consumer demand and the stickiness of service inflation, the inflation rate may continue to rise, posing a challenge to the Federal Reserve's next easing.
In terms of the job market, as of the week ending November 23, the number of first-time applicants for unemployment benefits decreased by 2000 people month on month to 213000, continuing to hit a new low in the second half of the year. However, the number of applications for unemployment benefits has risen to 1.91 million, the highest level in three years. Since the beginning of this year, the US labor market has cooled down, with the unemployment rate slightly dropping from 3.7% at the end of 2023 to over 4%. On the other hand, since the beginning of this year, the non farm sector has created an average of over 100000 new jobs per month, which does not indicate a sharp increase in layoffs.
Schwartz believes that the number of unemployment claims has fluctuated due to the impact of the Boeing strike and multiple hurricanes. Generally speaking, this growth may indicate a slowdown in recruitment speed. But with Boeing reaching a labor agreement and some individuals affected by the hurricane returning to work, it is expected that non farm employment will increase in November.
The cooling of the 'Trump deal' has led to a significant drop in medium - and long-term US bond yields. The 2-year US Treasury bond, which is closely related to interest rate expectations, fell 19.7 basis points to 4.27% per week, and the benchmark 10-year US Treasury bond fell 21.7 basis points to 4.19% per week, marking the largest decline in nearly three months. The pricing of federal funds rate futures shows that the probability of a 25 basis point rate cut in December has once again risen to around 70%.
Scott Helfstein, head of investment strategy at asset management giant Global X, said that the expected inflation data is a welcome update for the Federal Reserve, "they can know that we are still close to full employment and prices are stable. He also stated that the downward trend of interest rates in the future will not change.
Schwartz stated that bond yields have fallen from their peak, and market concerns about Trump's tariffs and tax cuts have weakened. The Federal Reserve currently does not intend to include them in policy decisions at the upcoming Federal Open Market Committee meeting in mid December. However, there are numerous unpredictable factors to consider in the future, including unstable inflation trends and separating noise from signals in the external shocks that have impacted the economy in recent months. He expects the Federal Reserve to cut interest rates by another 25 basis points in December, but the possibility of remaining cautious in the future is increasing.
Funds continue to pour into US stock funds
The US election has brought an exciting November to the US stock market, with the Dow Jones Industrial Average rising 7.5% and reaching a milestone of 45000 points, while the Nasdaq and S&P 500 indices have also risen over 5%. FactSet data shows that the Dow Jones Industrial Average and the S&P 500 Index have achieved their best monthly performance since 2024.
With the upcoming transition of the US government, the nomination of cabinet candidates has received more attention. Trump had previously chosen Scott Bessent as the US Treasury Secretary, and market expectations that his debt levels would remain manageable during his second term have increased. The decline in US bond yields has also boosted market risk appetite. Bessent has worked for legendary investors George Soros and Stanley Druckenmiller in his career, and he is considered the most favorable person for the capital market among the Treasury Secretary that Trump may choose.
Evercore ISI stated in a research report that given Besant's deep understanding of financial markets and the economy, especially the need for the Trump administration to support the bond market if it wants to successfully advance its agenda, this choice should satisfy the market. "However, we do not believe that this is Trump completely abandoning his campaign ideas on immigration, trade, and deficits in favor of a new market friendly signal
The flow of funds shows that investors continue to flock to US stock funds, and the slowdown in US bond sales has cooled concerns about the prospects of growth stocks. According to data provided by LSEG, the London Stock Exchange, investors purchased $12.78 billion worth of US stock funds, with a significant increase in net purchases from $3.03 billion a week ago.
Barclays has raised its forecast for the S&P 500 index in 2025 from 6500 points to 6600 points. "For the US stock market, we believe that macro positive factors next year will outweigh negative factors." In addition, Goldman Sachs and Morgan Stanley both predict that the index may touch 6500 points, as they are optimistic about the sustained growth of the US, the strengthening of corporate profits, and the Federal Reserve's interest rate cut path.
Since the beginning of this year, the S&P 500 index has risen by more than 26%, which is expected to be the best year since 2021. However, there has not been a correction correction of 10% or more during the year. According to Bespoke Investment Group, since 1928, the S&P 500 index has been revised on average every 346 days, meaning it appears almost every year.