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The Long and Short of it, week ending 22 Dec 2023

Posted: 27 December, 2023

Topic: Telecoms , Financials , Basic Materials , Energy , Industrials , Technology

Publication Type: Market Commentaries

The Long and Short of it, week ending 22 Dec 2023

Another positive week for stock markets with all 3 major indexes moving higher. Indexes recorded gains each day last week, except for Wednesday when they experienced sharp declines Momentum from last week’s gains moved indexes higher early in the weak, driven by expectations of early-next-year rate cuts combined with a resilient economy, despite some hawkish comments by Fed officials. Wednesday’s sharp sell-off (with all 3 indexes dropping at least 1 ¼ percent) came on the heels of stronger-than-expected consumer confidence and existing home sales, seemingly tempering rate cut expectations and, as a result, bolstering risk-off sentiment. Those concerns, however, significantly faded with Thursday’s revised-lower Q3 GDP (final estimate) and, perhaps more importantly, with Thursday’s revised-lower third quarter PCE Price Index (part of the GDP report). Friday’s better-than-expected current PCE Price Index release reduced concerns further, further supporting stock prices. For the week, the S&P 500 Index rose 0.8% to 4,754.63, the Nasdaq Composite Index climbed 1.2% to 14,992.97, the Dow Jones Industrial Average increased 0.2% to 37,385.97, the 10-year U.S. Treasury rate fell 1bps to 3.90% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) weakened 0.9%.

Both the STOXX 600 and FTSE 100 Indexes rose last week but with the FTSE 100 Index strongly outperforming. Lower-than-expected euro zone (and German) inflation worked to move the STOXX 600 Index higher last week but gains were capped by hawkish ECB officials’ comments (refuting the ECB would cut rates early next year), Chinese regulation of video game purchases and sharply lower sportswear stock prices following Nike’s disappointing sales forecast. Much lower-than-expected UK inflation along with rising oil and metals prices pushed the FTSE 100 Index higher. Growing expectations of BoE rate cuts early next year (bolstered by cooling inflation and recession concerns) were the primary impetus. FTSE 100 Index gains were somewhat capped, however, by continued strengthening of the British pound. For the week, the FTSE 100 Index increased 1.6% to 7,697.51, the STOXX 600 Index rose 0.2% to 477.60, the 10-year Gilt rate fell 18bps to 3.51%, the 10-year Bund rate decreased 4bps to 1.97% and the British pound and euro strengthened 0.2% and 1.1%, respectively, both versus the U.S. dollar.