November gains to be extended at the open

Can this month get any better? The short answer is yes. The long answer is, yes, the equity futures market is in a position that suggests more gains will be seen at today’s open.

Currently, the S&P 500 futures are up 21 points and are trading 0.5% above fair value, the Nasdaq 100 futures are up 101 points and are trading 0.7% above fair value, and the Dow Jones Industrial Average futures are up 104 points and are trading 0.3% above fair value.

There are various factors driving the positive bias this morning, but one factor stands above all: falling interest rates.

The 2-yr note yield is down six basis points to 4.67% as market participants price in the possibility of the Fed cutting rates in the first half of 2024. That view was stoked yesterday by Fed Governor Waller, who said rates could be lowered if inflation continues to fall for several more months, and it has been stirred again this morning with Bloomberg reporting that hedge fund manager Bill Ackman thinks a rate cut could come as soon as the first quarter due to the economic pressures associated with rising real rates.

The 10-yr note yield is down five basis points to 4.29%, supported by some pleasing inflation data out of Germany, Spain, and Australia. The 10-yr note yield went as low as 4.25% overnight.

The second estimate for Q3 GDP didn’t convey any economic pressures. On the contrary, it showed real GDP increasing at an annual rate of 5.2% (Briefing.com consensus 4.9%), up from the preliminary estimate of 4.9%. The GDP Price Deflator was revised up to 3.6% (Briefing.com consensus 3.8%) from 3.5%. Notably, the PCE Price Index was revised lower to 2.8% from 2.9% while the core PCE Price Index was revised down to 2.3% from 2.4%.

The key takeaway from the report is that the U.S. economy was effectively booming in the third quarter despite higher interest rates, aided by a strong labor market and disinflation that fueled healthy consumer spending activity.

Fourth quarter activity isn’t expected to be as robust, but it is still expected to be stronger than one might think given the scope of rate hikes since March 2022. The Atlanta Fed GDPNow model estimate for real GDP growth in the fourth quarter is 2.1%.

Treasury yields moved higher initially after the GDP report, which is a little curious given the report’s dated nature. Nonetheless, the outsized growth in the third quarter is perhaps leading to some assumptions that there will be enough carryover momentum to keep the economy humming in the fourth quarter, too, and the Fed in a higher-for-longer state of mind.

In other news aiding the equity futures market, CrowdStrike (CRWD), NetApp (NTAP), Workday (WDAY), Intuit (INTU), and Foot Locker (FL) are all posting sizable pre-market gains following their earnings reports, and General Motors (GM) is up nearly 10% after reinstating its FY23 guidance, increasing its dividend by 33%, and announcing a $10 billion accelerated stock repurchase plan.

Then, there is the intangible factor that is the fear of missing out on further gains. That fear is present with the S&P 500 closing in on 4,600 after flirting with 4,100 in late October.

With a move like that, some will surely be questioning if the market has gotten too complacent or too “bulled up,” leaving it vulnerable to some pullback action. The answer for some might be found in the latest Investors Intelligence Survey, which showed the highest reading for bulls (55.7%) since late July or perhaps in the 13.5% move in GameStop (GME) on no fundamental news of note.

—

Originally Posted November 29, 2023 – November gains to be extended at the open