It’s the final week of 2023 and the calendar is light for economic data.
Many on Wall Street, Main Street and points in between will be taking a few days rest. Stock futures are ticking higher, but trading is likely to be light in the bridge week between what turned out to be a surprisingly good 2023 and the unknowns of 2024.
The New Year will begin with many believing the Federal Reserve has come close to taming the inflation bear without tanking the economy to do so. The labor market remains strong, spending is holding up, and interest rates are more likely to be lower at the end of 2024 than higher.
As the shortened week begins, the S&P 500 index is up more than 25% for the year, a bumper return by any measure and especially so given that many had predicted a recession in 2023. Bond yields are down, with the 10-year Treasury at 3.9%, and oil is at $73 and $79 a barrel for domestic and international benchmarks despite rising tensions in the Mideast.
A vigorous debate has broken out on social media about who was right about inflation: Was it the crowd that believed the spike in prices came about because of a shortage of supply of goods and labor? Or those that blamed the explosion of money in the economy from pandemic stimulus and accommodative monetary policy?
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The American consumer could probably care less as long as gasoline prices remain close to the $3 mark, the price of groceries stops going up, and real wages continue their modest rise above inflation.
Last week ended on a positive note regarding inflation, with the personal consumption price expenditures index for November registering a 2.6% rate, down from 2.9% in October. The three-month trend has been even more positive, showing inflation coming down closer to the Fed’s 2% annual target.
“Looking ahead, there’s no reason to assume that the final mile of disinflation will be the most challenging,” Lydia Boussour, senior economist at EY-Parthenon, wrote on Friday. “Five key elements have already materialized and will form the perfect mix for disinflation going into 2024: diminished consumer demand growth, declining rent inflation, narrower profit margins, moderating wage growth and a tight monetary policy,” she added. “We foresee headline and core PCE inflation around 2.2% y/y in Q4 2024.”
One area that will be watched is the state of the housing market and, on that front, there will be fresh data this week. The S&P CoreLogic Case-Shiller housing index for October is due out Tuesday morning with home prices up 6.1% for the year so far and higher by 3.9% from a year ago. A shortage of homes for sale has kept prices rising even as higher mortgage rates have dampened demand.
“After declining in the later half of 2022, home prices are up nearly 6.1% year-to-date,” economists at Wells Fargo’s corporate and investment banking group wrote late last week. “Though a considerable downshift from the rapid price growth that occurred during the pandemic, the march up in prices alongside still-constrained new and existing home inventories has eroded affordability and made it increasingly harder for potential homebuyers to purchase a house.”
Pending homes sales for November will be released on Thursday, with expectations for a small increase.
The rest of the week offers little in the way of market-moving data, and the markets will close early Friday ahead of the New Year’s weekend. After all, attention will turn away from 2023 and onto 2024. The first week of the new year will bring a series of reports on the labor market, concluding with the December jobs report from the Labor Department.