Wall Street continues its upward streak. It will be cut or die

The New York stock exchanges ended with significant gains for the fourth session in a row. The market believes that the Federal Reserve will deliver another interest rate cut in December. Shares of companies related to the AI ​​sector were again purchased under this scenario.

The S&P500 index ended Wednesday's trade at 6,812.61 points, which meant an increase of 0.69%. The Nasdaq Composite gained 0.82% and reached 23,214.69 points. In both cases, this meant the fourth consecutive upward session and a return to the October peak of the bull market. The Dow Jones industrial average is also getting closer to the recent all-time record, gaining 0.67% on Wednesday and reaching 47,427.12 points.

It was the last regular session on Wall Street this week. The New York Stock Exchange will be closed on Thursday for Thanksgiving Day. Trading will be shortened on Friday, and investors can now think more about Christmas sales in retail chains than about purchasing shares. It is estimated that this year, for the first time in history, the nominal value of pre-Christmas sales will exceed one trillion dollars (1 trillion is one thousand billion, i.e. one million million).

– We are also approaching the best time of the year for stocks – from November to April. It's hard not to remain optimistic,” said Eric Diton, president and managing director of The Wealth Alliance. –If the Fed fails, there could be a sell-off – added Diton in an interview with CNBC.

The mood on Wall Street changed on Friday. It was then that the head of the New York Fed, John Williams, came on stage and spoke of a “likely further adjustment” of interest rates in the “short term.” As a result, the futures market estimates the chances of a December interest rate cut by the Federal Reserve at almost 85%. This is almost the same as at the end of October and definitely more than two weeks ago, when the chances of implementing the 25-point cut in December were estimated at only 30%.

Let us just recall that 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. A Reuters survey of analysts shows that, on average, they expect a 12% increase in the S&P500 index by mid-2026.

The prospect of a lower discount rate is once again driving astronomical valuations in the AI ​​sector. Broadcom shares rose more than 3% on Wednesday, AMD rose almost 4% and Oracle rose 4.2%.

On Wednesday, the macroeconomic front was very active, from which we receive both “overdue” and current macroeconomic statistics. In my opinion, the most interesting were the weekly data on the number of newly registered unemployed, which unexpectedly dropped significantly from 226,000. up to 216 thousand In itself this is a very low result and at the same time 10,000 lower than economists' expectations. These are not numbers that would indicate any problems with the labor market or unemployment. And this is the main basis for the narrative in favor of the Fed lowering rates.

However, the November (i.e. very current) Chicago PMI reading was incredibly poor, dropping from 43.8 points. up to 36.3 points This reading is usually reserved for times of economic collapse, such as the Covid lockdown or the global crash of winter 2009. No one expected such a poor reading.

“The fact that we've seen such rapid growth after the recent stock market decline just goes to show that there's still strong demand,” said Daniel Murray, deputy chief investment officer at EFG Asset Management.

However, Valerie Charriere, director of European equities at BNP Paribas Asset Management, was more skeptical – I do not expect a typical Christmas rally. There are some cracks in AI valuations, and there is uncertainty about the Fed's actions. Considering the good performance of the indices so far this year, I would rather expect a rotation towards defensive sectors that are performing worse, said Charriere.

KK/PAP

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