Nasdaq Closed Higher For The 4th Week In A Row, FOMC Meeting On Tap For Wednesday Stocks closed mostly lower on Friday, except for the Nasdaq. Same goes for the week, with only the Nasdaq notching another weekly gain, making it 4 up weeks in a row. Last week's CPI and PPI inflation reports were a mixed bag. The CPI (retail inflation) came in as expected, but still a bit higher than the previous month. While the PPI (wholesale inflation), came in mostly above expectations, with an even larger increase above the previous month. None of that appears to have altered the expectations for the Fed to cut rates when they conclude their FOMC meeting on Wednesday, 12/18, where they are widely expected to cut rates by another 25 basis points. In fact, Fed Funds traders, via the CME's FedWatch tool, has a 96.0% probability that they do just that come later this week. But the stalled progress, (or slight reversal), could have an impact on what the Fed does next year. While no one is expecting a meaningful increase in inflation at this point, the lack of downward movement could complicate the Fed's assertion that we are on a "sustainable path back to 2%." Nonetheless, there's still a strong case to be made for lower interest rates beyond December, even if inflation progress slows or comes to a halt. And that's because, if one were to assume that 100 basis points above inflation is the natural rate (aka the neutral rate) to allow for growth, but keep inflation in check, then with core PCE inflation currently at 2.8%, it suggests interest rates should come down at 3.8%, which is 83 basis points below our current Fed Funds midpoint level of 4.63%. So even after another 25 basis point cut in December, it would still mean interest rates are 58 bps too high. We'll get another look at PCE inflation on Friday, 12/20, two days after Wednesday's FOMC announcement. In the meantime, today's economic report consists of the NY Fed Manufacturing report. With just 2 weeks and 2 trading days left in the year, the market is on pace for another spectacular year. YTD, the Dow is up 16.3%, the S&P 500 is up 26.9%, the Nasdaq is up 32.7%, the small-cap Russell 2000 is up 15.8%, and the mid-cap S&P 400 is up 17.8%. As for the S&P 500, it looks like we're headed for the second year in a row of 20%+ returns. (2023 was up 24.2%.) A rare feat. I note this because the last time we saw this take place was back in 1995-1996. (Prior to that, you'd have to go all the way back to 1954-1955 to see that.) But more impressive than the two years in a row of 20% gains, is what happened afterwards. In 1997 it was up 31.0%, in 1998 it was up 26.7%, and in 1999 it was up 19.5%. That's 5, long, glorious years of gains. Those gains were driven by the technology boom of the internet and dot-com companies. The parallel is that today's gains are driven by another technology boom, this one being shaped by Artificial Intelligence (AI). And it looks like we could be on the cusp of another 5 years of gains, if not more. Add in the prospect for lower interest rates, a strong economy, and increasing earnings estimates for the coming quarters, not to mention a broadening rally, and you have a recipe for an historic and long-lasting bull market. So make sure you're taking full advantage of it. See you tomorrow,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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