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Profit-taking and economic concerns put an end to the pre-Christmas stock market rally for the time being

An unexpectedly strong improvement in consumer confidence in the US and market expectations of a first interest rate cut  by the Fed as early as March, as well as the yield on ten-year US government bonds remaining below the 4% mark, initially provided support for Wall Street. However, profit taking and growing concerns about the future course of the economy put a temporary halt to the rally. Uncertainties regarding global supply chains due to disruptions on the important transport route through the Red Sea are also weighing on the market. 

Alessandro Fezzi, LGT
Reading time
5 minutes
US consumer confidence
© Shutterstock

On Wall Street, profit-taking caused a setback in the middle of the week. The Dow Jones Industrial lost 1.27% yesterday after the recent record highs and ended trading at 37,082.00 points. The S&P 500 fell by 1.47% to 4,698.35 points and the indices on the Nasdaq lost around 1.5%. On the bond market, however, the yield on ten-year US government bonds remains below the much-noticed 4% mark and investors' hopes that the Fed will soon ease interest rates are likely to remain an important support for the stock markets. According to the "Fedwatch Tool" of the Chicago Mercantile Exchange, the expectation of a first interest rate cut as early as March currently stands at over 80%. On the other hand, economic concerns, which are once again coming to the fore, are weighing on market sentiment. The shares of US logistics company FedEx, for example, sent out a negative economic signal yesterday. The share price plummeted by 12% after the company missed expectations with its Q2 results and lowered its revenue forecast for the year as a whole due to weaker demand.

The mood of American consumers surprisingly brightened considerably in December. At 110.7 points, the consumer confidence barometer published by the Conference Board market research institute at the end of the year was significantly higher than the previous month's figure of 101.0 points. On average, analysts had forecast a more moderate improvement to 104.5 points. Positive news also came from the US property market yesterday. According to the National Association of Realtors (NAR), existing home sales rose by 0.8% in November compared to the previous month (consensus 0.3%), ending the recent downward trend.

Most Asia-Pacific markets posted losses on Thursday, following the trend on Wall Street. Japan's Nikkei 225 fell by 1.5% and South Korea's Kospi
fell by 0.8%. The Hang Seng Index in Hong Kong, on the other hand, recouped earlier losses and gained 0.3%, while the CSI 300 rose by 0.75%. In Australia, the S&P/ASX 200 fell by 0.45%.

Inflation cooled further in the UK. Compared to the previous year, consumer prices rose by 3.9% in November - the lowest level since September 2021. A month earlier, the inflation rate was still 4.6%. The decline was therefore much sharper than economists had expected - the consensus was 4.3%. Core inflation also fell, but at 5.1% (previous month: 5.7%) it is still significantly higher than overall inflation. As a result, the FTSE 100 reached a three-month high.

ECB Governing Council member Klaas Knot spoke out against easing interest rates in the near future. The head of the Dutch central bank does not yet see a turnaround in wage trends in particular and therefore sees a continuing risk in the inflation outlook. Knot considers an interest rate cut in the first half of 2024 to be "rather unlikely" as things stand.

Corporate news in focus: Nike Q2 figures.

Economic data in focus: Turkey Central Bank interest rate decision (12:00), US GDP and private consumption Q3 as well as initial jobless claims (weekly) and Philly Fed industrial indicator December (14:30) leading indicator November (16:00).


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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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