New York Stock Market Pauses, Slightly Lower Early Session Ahead of PCE

The three major indices of the U.S. New York stock market showed slight declines in the early trading session on Cyber Monday, the 27th (local time), amid a pause in the market. Amid recent rallies in the New York stock market raising expectations for a year-end Santa rally, this week is set to feature the release of the Personal Consumption Expenditures (PCE) price index, a preferred inflation indicator by the U.S. Federal Reserve (Fed), as well as remarks from Chairman Jerome Powell.

As of 10:05 a.m. at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average was down 0.11% from the previous close, trading around 35,351 points. The S&P 500 index fell 0.13% to 4,553 points, and the Nasdaq index dropped 0.04% to 14,244 points.

Among the 11 sectors within the S&P 500, all sectors except consumer discretionary, real estate, technology, and communication services were in decline. On Cyber Monday, Amazon rose more than 1.6% compared to the previous close, and Shopify increased by over 4%. Teva Pharmaceuticals rose more than 4% after UBS upgraded its investment rating from neutral to buy. Okta fell more than 2% following a downgrade by Jefferies.

[Image source=Reuters Yonhap News]

Investors are closely watching the shopping season results from Black Friday last week through Cyber Monday, while awaiting economic indicators such as the PCE, the Beige Book, and remarks from officials including Chairman Powell, in hopes of gaining hints about the future direction of monetary policy and economic outlook.

The U.S. core PCE for October, to be released on the 30th, is expected to show a 3.5% increase year-over-year and a 0.2% rise month-over-month, continuing a slowing trend. If the slowing trend is reconfirmed in the PCE, which the Fed monitors following the previously released Consumer Price Index (CPI), expectations for interest rate cuts next year will strengthen, positively impacting the New York stock market. Amid growing hopes for a soft landing of the U.S. economy, the Beige Book containing the Fed’s economic assessment will be released on the 29th, ahead of the PCE announcement.

Currently, the market consensus is that there will be no further interest rate hikes in this tightening cycle. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market is pricing in over a 94% probability of a rate hold in December. The probability of a hold continuing through January next year exceeds 88%.

Fed Chairman Powell, who has stated that more evidence is needed to confirm the easing inflation trend, will participate in a panel discussion at an event in Atlanta on the 1st. There, he is expected to welcome the recent confirmed easing of inflation while emphasizing that there is still a long way to go to reach the 2% price stability target. Public remarks from John Williams, President of the New York Federal Reserve Bank and considered the third most influential Fed official, Christopher Waller, and Michelle Bowman, both Fed governors, are also scheduled for this week.

In the New York bond market, the benchmark 10-year U.S. Treasury yield is trading around 4.42%. The 2-year yield, sensitive to monetary policy, stands at about 4.92%. The dollar index, which measures the value of the U.S. dollar against six major currencies, is steady around 103.3.

Additionally, investors are looking to confirm consumer spending trends driving the U.S. economy through the results of Black Friday and Cyber Monday. If strong consumption is confirmed during these shopping events, expectations for a year-end Santa rally will increase. According to Adobe Analytics, online sales on Black Friday rose 7.5% year-over-year, exceeding forecasts. Consequently, Cyber Monday projections have also been revised upward.

However, if the results fall short of expectations, it could be interpreted as a signal that the Fed’s cumulative rate hikes are burdening the overall economy. The minutes of the November FOMC meeting previously noted that financial pressures are increasing, especially among low- and middle-income groups, and that officials are closely monitoring consumer spending data.

This week, in addition to the PCE, indicators gauging consumer sentiment such as the Conference Board (CB) Consumer Confidence Index, preliminary third-quarter Gross Domestic Product (GDP) growth rate, and the ISM Manufacturing Purchasing Managers’ Index (PMI) will also be released. The October new home sales data released today showed a 5.6% decline from the previous month to 679,000 units, falling short of market expectations of 725,000 units.

Mohamed El-Erian, Chief Economic Advisor at Allianz, appeared on CNBC’s Squawk Box and pointed out that some factors that triggered the November rally in the New York stock market are now working in the opposite direction, stating that “the current consensus outlook for the global economy is too optimistic.”

Furthermore, on the 30th, the Organization of the Petroleum Exporting Countries Plus (OPEC+) meeting, which could impact oil prices, is scheduled. Earlier, the oil-producing countries postponed this meeting from the 26th, fueling speculation about significant disagreements over production targets. However, major foreign media outlets have reported, citing sources, that a compromise among oil-producing countries is underway. Alongside this, the temporary ceasefire in Gaza and the exchange of hostages and prisoners have somewhat eased geopolitical risks originating from the Middle East.

European stock markets are mixed, trading near flat. Germany’s DAX index is down 0.14%, the UK’s FTSE index is down 0.18%, while France’s CAC index is showing slight gains.