S&P 500 closed above 200MA for the first time

Stocks just posted the first streak of back-to-back monthly gains since 2021, with a gradual upward trend punctuated by a sharp rally on the last day of November.

S&P 500 and Dow in detail

Technically, the S&P500 closed back above its 200-Day Moving Average for the first time since March on a trifecta of bullish headlines i.e., Fed Chair Jerome Powell delivering a more dovish speech than the trade was anticipating, the Chinese easing Covid restrictions in some parts of the country, and the US House of Representatives passing a resolution 209-137 that would force railroad unions to accept a tentative agreement reached earlier this year between railroad managers and their workers and make an imminent strike illegal.

Technically, the Dow is now no longer in a "bear" market, having risen +20% from its most recent low. Year-to-date, the Dow is still down -4.7%, while the S&P 500 is down over -14% and the Nasdaq is down almost -27%.

Bulls however have a renewed sense of optimism after Fed Chair Jerome Powell delivered slightly less hawkish remarks, the Fed chief indicated that interest rate hikes would be scaled back to 50-basis points starting at the December 13-14 meeting. Still, Powell repeated previous warnings that Fed policy will likely still have to remain tight "for some time" to restore price stability and said substantially more evidence of declining inflation was still needed.

The real bullish takeaway from Powell's comments, however, is that Fed's target rate for this tightening cycle would likely only be slightly higher than previously forecast in September.

The median projection at that time was for rates to top out at 4.6%, which implies a target range of 4.5% - 4.75%. The benchmark currently sits at 3.75% - 4%. Bulls are also getting a boost from a flurry of economic data that indicates clear signs of a slowing US economy. Remember, "bad news" is played as "good news" in this world because it means the Fed will slow down on tightening.

Labor market

One area of particular focus for the Fed has been the ultra-tight jobs market. Good news on that front was found in the Job Openings and Labor Turnover Survey yesterday which showed a decline of -353,000 openings from the previous month.

The more important test will be the November Employment Report due out on Friday. Data from ADP yesterday showed a much less-than-expected gain in private payrolls of just 127,000 and bulls are hoping that same weakness is revealed in the official data.

On the flip side, third-quarter GDP was revised up to an annualized +2.9% from a prior estimate of +2.6%, which some bears view as a sign that the Fed's tightening campaign still has much further to go.

There remains a good deal of unease about the inflation trajectory due to a still-strong US consumer, as well as the many uncertainties surrounding global oil supplies.

Oil prices yesterday moved higher after data showed US stockpiles fell by the most since 2019 last week, according to Energy Information Administration. With Russian supplies set to be disrupted, China maybe reopening soon (big maybe), and OPEC waffling between production cuts and increases, oil traders are expecting more volatility ahead.

It's worth noting that US gas prices have moved substantially lower, hitting an average of $3.50 a gallon yesterday, according to AAA. Some experts think the national price average could slide below $3 by Christmas. On the surface, that sounds great for inflation but keep in mind, that means more money in consumer pockets, which in turn could boost discretionary spending and continue to buoy inflation.

Data to watch

Today, investors are anxious to see the PCE Prices Index, one of the Fed's favorite inflation gauges. Wall Street is expecting year-over-year inflation will drop to +6% from +6.2% previously. ISM Manufacturing and Construction Spending data are also due today.

Earnings of interest today include ChargePoint, Dollar General, Kroger, Nintendo, and Ulta.