The Trajectory Of US Stocks May Hinge On An Economic Soft Landing Following An Amazing Run
The S&P 500 has gained more than 9% since late October, and this rise has been aided by signs of slowing inflation, which have raised expectations that the Federal Reserve is done hiking interest rates. The index is currently up around 18% for the year and is less than 2% from its July peak. It is about 6% away from its record closing level from January 2022.
Increase In Treasury Yields
Whether or not it can reach those levels in the upcoming weeks will largely depend on how confident investors are that the US economy is headed for a “soft landing,” in which the Fed lowers prices without significantly harming GDP. The economy has so far shown itself to be resilient to tighter monetary policy, despite some softening in consumer demand and employment indicators.
Another challenge is the continued high Treasury yields and rising valuations. More advances, however, might be supported by other considerations, such as past seasonal tendencies.
LSEG data shows that U.S. stock funds saw net inflows of around $9.33 billion in the week ending November 15, which was the highest weekly net purchase since September 13.
The benchmark 10-year Treasury yield fell sharply on Friday, from a 16-year peak of slightly over 5% last month. The steady increase in Treasury yields over the past few months has put pressure on stocks. Bond prices are inversely correlated with yields.
US Retail Sales Decreased
Many investor fears have dissipated, according to Robert Pavlik, senior portfolio manager at Dakota Wealth, including anxieties over an earnings season for the third quarter that exceeded expectations.
Seasonality is also in the favor of stocks: the Stock Trader’s Almanac reports that November and December had the second- and third-largest monthly returns of the year, climbing 1.5% and 1.4% on average, respectively, since 1950.
Black Friday, which traditionally marks the beginning of American holiday shopping the day following Thanksgiving, provides insight into the state of the consumer-driven economy. U.S. retail sales decreased in October for the first time in seven months, according to data released on Wednesday.
