Grinding higher
All four major US stock indices inched into positive territory in early trade this morning. Yesterday, tech stocks led an advance which saw the NASDAQ add around 1% on the day, and the S&P gain 0.2%. The Russell 2000 was effectively unchanged, while the Dow slipped 0.3%. Overall, the recent price action has slowed to a steady grind higher. This follows the explosive rally across all the majors in November, triggered by Trump’s election victory, and led by the domestically-focused, mid-cap Russell 2000. Last month’s rally has seen if not a change in leadership, at least a broadening in the stock market rally. Financials and industrials have benefitted, while sectors viewed as defensive, such as healthcare and consumer staples, have been largely ignored. This gives ammunition to the bullish perspective. It indicates that investors have the confidence to extend their exposure outside of the market-leading tech sector. At the same time, the prevailing bullishness means that investors are currently spurning ‘safe haven’ defensive stocks. The probability of a 25 basis point rate cut from the Fed this month jumped to 72%, up from 60% on Friday. This followed a speech from the Fed’s Christopher Waller who says he favours a rate cut this month. But he also said he was concerned about the recent uptick in inflation. His colleague, John Williams, said that more work has to be done to get inflation back on track towards the Fed’s 2% target. Today there are speeches from Federal Reserve members Adriana Kugler and Austan Goolsbee. There’s also JOLTS Job Openings, the first major labour market data release this week which culminates with Friday’s Non-Farm Payrolls.
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