The Federal Reserve-induced rally appears set to continue, with the stock futures firmly in the green early Thursday. The small-cap party may have started following the group’s relative underperformance for much of the year. Traders may look ahead to the economic report on jobless claims and retail sales as well as earnings reports from a handful of companies to confirm the soft-landing scenario implied by the Fed.

It is more likely that the major averages go about a consolidation move as they take a breather after the recent five-session run-up.

Cues From Previous Session:

Stocks rallied hard on Wednesday after the Federal Reserve implied a median of three rate cuts next year in their summary of economic projections. The pivot of the central bank to a markedly dovish stance helped the averages shoot higher after the release of the monetary policy statement and the summary of economic projections.

Fed Chair Jerome Powell did not upset the market’s apple cart by confirming the dovishness and buying continued amid his press conference and into the market close.

All three major averages ended higher for a fifth straight session, with the 30-stock Dow Industrials Average ending at a record high. The Nasdaq Composite and the S&P 500 Index ended at their highest levels since Jan. 14, 2022, and Jan. 12, 2022, respectively.

US Index Performance On Wednesday

Index Performance (+/-) Value
Nasdaq Composite +1.38% 14,733.96
S&P 500 Index +1.37% 4,707.09
Dow Industrials +1.40% 37,090.24
Russell 2000 +3.52% 1,947.51

Analyst Color:

Despite the euphoria over the Fed’s pivot to a dovish stance, investors may be better off remaining cautious. In a note released ahead of the Fed decision, Morgan Stanley’s Lisa Shalett said investors should temper their 2024 expectations and focus on yield, cash flow, value-oriented investments, and tax-efficient portfolio strategies.

Since the economy has been surprisingly resilient to rising interest rates, falling rates may do little to stimulate growth, the strategist said. The market’s biggest stocks may not benefit much from lower rates and therefore passive index investors could be in for some disappointment, she said.

As opposed to the Fed’s expectations of inflation falling in 2024, Shalett sees upward pressure on inflation and a setback to growth from the swelling federal debt which currently stands at about 125% of GDP.

Separately commenting on the Dow’s record close, Carson Group’s Ryan Detrick said more gains could be in the offing.

“Since WWII, higher a yr later 10 of 12 times and up 14.1% on average with a very solid median return of 16.4%,” he said.

Futures Today

Futures Performance On Thursday

Futures Performance (+/-)
Nasdaq 100 +0.30%
S&P 500 +0.25%
Dow +0.27%
R2K +1.17%

In premarket trading on Thursday, the SPDR S&P 500 ETF Trust SPY rose 0.28% to $471.81 and the Invesco QQQ ETF QQQ gained 0.37% to $405.23, according to Benzinga Pro data.

Upcoming Economic Data:

The Labor Department is scheduled to release the jobless claims report at 8:30 a.m. ET. Economists expect the number of individuals claiming unemployment benefits to remain unchanged at 220,000 in the week ended Dec. 9.

The Labor Department will also release its export and import prices report for November at 8:30 a.m. ET. The consensus estimates call for a 0.8% month-over-month decline in import prices, the same pace as in October, and a 1% fall in export prices, slightly less than the 1.1% fall in the previous month.

The Commerce Department is due to release its retail sales report for November at 8:30 a.m. ET. Economists, on average, expect a 0.1% month-over-month drop in the headline number as well as core retail sales. This compares to the October readings of a 0.1% drop and a 0.1% rise, respectively.

The Commerce Department is due to release its business inventories report at 10 a.m. ET.

The Treasury is set to auction four- and eight-week bills at 11:30 a.m. ET.

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Stocks In Focus:

  • Adobe, Inc. ADBE fell about 5.50% in premarket trading following the weak guidance it issued for 2024.
  • Jabil, Inc. JBL is due to report its quarterly results ahead of the market opening, while Lennar Corp. LEN and Costco Wholesale Corp. COST will report after the close.

Commodities, Bonds, Other Global Equity Markets:

Crude oil futures climbed 1.73% to $70.67 in early European session on Thursday following Wednesday’s nearly 1.25% rally.

The benchmark 10-year Treasury note slipped further below the 4% threshold, as yield fell 0.082 percentage points to 3.951% on Thursday.

The Asian markets rallied strongly in reaction to the U.S. Fed decision, although the Japanese and Chinese markets bucked the downtrend. European stocks also advanced strongly by late-morning trading ahead of two key central bank decisions from the region.

The Bank of England is expected to announce its interest rate verdict at 7 a.m. ET and the European Central Bank’s decision will follow at 8:15 a.m. ET. Both central banks are expected to hold fire at the final meeting of the year.

The U.S. dollar is weaker after rising on Wednesday amid the Fed decision and cryptocurrencies firmed up after their recent weakness due to an increase in risk appetite. The Bitcoin BTC/USD was back above the $43,000 level.

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