Weekly Market Update December 20, 2023

Jerome Powell and the Federal Reserve provided additional fuel for the recent "everything" market rally as the S&P 500 was up for the seventh straight week and is now up 23% in 2023. Importantly, the rally is beginning to broaden beyond the Magnificent seven mega-cap tech stocks; the Russell 2000 Index (an index of small-cap stocks) has generated a return of 11% over the last month while the Magnificent seven are up just 1.4% over the same time period. Further, bonds joined in on the rally as well with the 10-year Treasury rate falling below 4% for the first time since July (bond prices move inversely to interest rates). (Source: The Wall Street Journal) 

There were three key takeaways from the Fed's last meeting of the year, starting with the Fed's dot plot which now indicates no more hikes and three interest rate cuts in 2024, one more than the last dot plot release. Second, the Fed embraced a form of a "soft landing" that allows for lower economic growth, declining inflation, and an unemployment rate at just over 4% for 2024. Lastly, Powell reiterated that while the Fed's inflation target is 2%, inflation does not have to be at 2% for the Fed to begin rate cuts. The market took the news and ran right past the Fed, pricing in six rate cuts in 2024. (Source: Edward Jones) 

This week starts with a check on the U.S. real estate market with home prices on Monday, housing starts on Tuesday, existing home sales on Wednesday and new home sales on Friday. The most anticipated data will be Friday's Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred gauge of inflation.

Blueprint Numbers

MAGNIFICENT 2023 - The mega-cap tech stocks dubbed "The Magnificent Seven" have dominated 2023, returning 75% in 2023 while the rest of the S&P 500 has returned just 12%. The seven stocks now make up 30% of the S&P 500 Index. Quite a rebound for a group of stocks that dropped 40% in 2022. (Source: The Wall Street Journal)

TESLA CYBERTRUCK DEBUT - Tesla finally released its first full-sized pickup truck, the Cybertruck, after multiple years of delays. The current version of the truck starts at nearly $80,000 and contains over 600 horsepower and a battery range of 340 miles. Production has been constrained, as only 2,000 to 3,000 Cybertrucks will be produced by the end of 2023. (Source: USA Today)

HOUSE PASSES MILITARY LEGISLATION - The House voted 310-118 to approve the National Defense Authorization Act, raising the national security budget 3% from $858 billion to $886 billion. The bill is a rare showing of consistent agreement in Washington; the bill's passage marks the 63rd consecutive year that Congress has voted to pass the authorization. (Source: The Wall Street Journal)

RATES FALLING FAST - The 10-year Treasury rate fell below 4% for the first time since July and national mortgage rates fell below 7% for the first time since August. Rates fell as the market digests a pivot in messaging from the Fed for three potential rate cuts in 2023. Short-term Treasury rates are still elevated as they’re more sensitive to the Fed’s 5.25% target rate. (Source: The Wall Street Journal)

The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Stock investing includes risks, including fluctuating prices and loss of principal.

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