Nasdaq and S&P500 up for the third session in a row. Will the Fed come to the rescue?

Tuesday's session on the New York stock exchanges brought a continuation of the increases that started on Friday. Investors believe that the Federal Reserve will come to their rescue and cut interest rates again in December.

The S&P500 index gained 0.91% on Tuesday and at the end of the day stood at 6,765.88 points. The Nasdaq Composite increased by 0.67% and reached 23,025.59 points. For both indices, it was the third upward session in a row, thanks to which the downward correction that had been developing since the beginning of November was interrupted. The Dow Jones industrial average added 1.43% and finished with a score of 47,112.45 points.

The narrative behind Wall Street's turnaround has remained the same for several days. The point is that the market again believes that the Federal Reserve will cut interest rates in December. Until the October FOMC meeting (when rates were cut by 25 bps, as expected), the market was almost 100% convinced that the same cut would also take place in December. But first, Chairman Powell, and then the content of the October minutes, confirmed that the December cut was not certain. The market valuation of the chances for a pre-Christmas discount has dropped to only 30%.

But on Friday, these hopes were revived by the head of the New York Fed, John Williams, who spoke of a “likely further adjustment” of interest rates in the “short term.” As a result, the futures market estimates the probability of a December cut at 83%. And after 2008, the FOMC never once made a decision that was contrary to market expectations. So there is a good chance that the market will “extract” a Christmas gift from Powell and company in the form of a lower discount rate and – ceteris paribus – higher share prices at the end of 2025.

Meanwhile, on the macroeconomic front, we learned more “overdue” (due to the October government shutdown) data from the US economy. And so, September retail sales were quite poor, as they increased only by 0.2% month-on-month, compared to the expected increase of 0.4% month-on-year. September producer inflation (PPI) remained unchanged at 2.7%. This is by no means consistent with the Fed's 2% target (although this applies to consumer goods prices – CPI).

– Of course, these data reflect September, and we have the end of November, but the trend seems to be that inflation is not getting worse, leaving the door open for a December interest rate cut – this is how Peter Cardillo, chief economist at Spartan Capital Securities in New York, tried to interpret Tuesday's market reaction, speaking for Reuters.

In addition, house prices stagnated, and the November Conference Board report showed a sharp decline in consumer sentiment. Apart from the latter, all previous reports concerned September – so from the point of view of a stock exchange investor, it is already very distant history. Now they are worried about the terrible mood of Americans and the risk of a bear market around the corner on the American housing market. Especially since the holiday consumer madness season is about to start in America, on which the profits of the largest retail chains depend.

In this context, it is worth noting the approximately 40% increase in the share prices of Kohls and Abercrombie & Fitch. Both retailers raised their full-year earnings forecasts in anticipation of a successful Christmas sales season. In turn, in the world of AI, Alphabet's shares again stood out, rising by 1.5%. Nvidia's shares fell again – this time by 2.6% – and despite fantastic quarterly results, they were depreciated by over 15% since the beginning of November.

K.K

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