Market Minute: One Small Hurdle Before the Holidays

Stocks are on the glidepath to victory for 2024, with just one last small hurdle to get through the next few weeks: pricing the odds of a December interest rate cut by the Federal Reserve.  

Odds of a 25 basis-point reduction by the central bank ended yesterday at around 75%, a level that looks a bit high if you ask me. Economic data have continued to impress, with the latest job openings figures yesterday causing the first real reversal in Treasury buying in weeks. The U.S. dollar also held its bid while yields slid the past two weeks, a sign to me that the difference between the Fed's path and other central banks remains a sizeable one.  

Language from Fed speakers has been pretty neutral, and we'll hear from chair Jerome Powell today. Last time he spoke, he was a bit preoccupied by having to defend his job. The election arguably has complicated the picture for the Fed, but for the most part, all of those implications remain in the realm of speculation. What is clear, though, is that U.S. growth expectations are ramping up, with the latest reading from the Atlanta Fed GDPNow estimate reaching 3.2%. 

Today's ISM services data should also play a meaningful role. Manufacturing data were surprisingly strong, but services I expected to be flat with the prior reading. That might be a low bar for a positive surprise, considering how robust consumer spending and travel have been. 

If any of this week's data come in warm, look for short-term yields to return to recent highs. If long yields do too, that should be a positive message about growth, but it could reduce the odds of a Fed cut and limit the small-cap and value rotation that's been happening. The good news is the S&P 500 should probably win either way, given how strong big tech has been again – look no further than Apple (AAPL) making fresh new highs this week.