Wall Street benchmarks were higher on Thursday as the latest economic data hit the tape and boosted bets for a rate cut next month. Bond yields continued to fall on the back of weaker consumer data, while the US dollar also fell, retreating from six-month highs. US consumer confidence in November slid by the most in 7 months over rising anxiety around the labour market and the economy. Rotation was also the order of the day with Nvidia tumbling 3% on fears of intensifying competition in the AI chip space, while the small/mid-cap Russell 2000 led the indexes higher. The consolidation in stocks was encouraging after the Nasdaq logged the biggest one-day gain in six months on Monday.
The S&P 500 gained +0.91% to 6,765, while the Dow Jones rose +1.43% and the Nasdaq Composite added +0.67%. The Russell 2000 small/midcap index led the benchmarks with a +2.14% gain, pointing to ongoing investor rotation and broadening out of the latest rally. Retailers got a lift after major department store operator Kohl’s jumped +34% and clothing retailer Abercrombie & Fitch surged +30%, with both companies raising annual earnings forecasts. Volatility continued to fall with the VIX down another 7% to 19.
The S&P500 has rebounded off key support near 6,500 and moved back into the trend channel that was established following the April lows. Resistance near 6,800 is likely to be encountered now at the downtrend that emerged from the record highs met a few months ago. A topside breakout above this resistance level re-engages the bullish setup for the SPX – and likely marks the end of the recent correction and resuming upward momentum. Our base case is for the correction to soon terminate and for the SPX to accelerate higher in December and January, making new record highs.
Bonds rose with yields falling across the curve. The yield on the US2yr fell 4 bps to 3.46%, while the 10s and 30s fell 2 bps to 4% and 4.65%. Commerce Department data showed retail sales fell short of expectations in September, while a separate report showed producer prices rebounding higher (also in September) due to higher costs of energy and tariffs. The bond market is looking through this data, however and pricing in a weakening US economy. Traders are now betting for a rate cut of 25 bps next month with an 82.7% chance, which is double last week’s 40%.
Sentiment around rate cuts has notably improved since last week, following dovish remarks by key voting members on the FOMC. A weakening US economy gives the Fed a pretext to move on a rate cut at the next meeting in mid-December. Meanwhile, the search for the next Fed Chair continues with Treasury Secretary and key Trump Administration economic adviser Scott Bessentt saying the announcement could come as soon as next month.
Markets will be closely parsing the appointment. An “unorthodox” appointment could see the Fed board become stacked with dovish-leaning officials, who would support aggressive rate cuts next year. The US 10yr yield has been falling on signs that the labour market is slowing down, but also with White House National Economic Council Director Kevin Hassett emerging as the front-runner to serve as the next Fed chair.
Mr Hassett is a senior American economist and Republican policy adviser who has held several top economic roles in recent administrations and is best known for his close association with DJT and for advocating pro-business, tax-cutting policies. Mr Hassett currently serves as Director of the National Economic Council (NEC) in the Trump White House, making him the President’s top in-house economic adviser and a key coordinator of economic policy across agencies.
The US dollar index pulled back from six-month highs with emerging signs of resistance appearing above 100. The DXY declined nearly 0.5% to test the uptrend in place since September lows. The uptrend, if broken, could be a precursor to a coming bout of renewed US dollar weakness should the Fed cut next month and if the Trump Administration appoints a dovish Chair replacement for incumbent Jerome Powell.
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