As Americans step into the traditional holiday shopping season, the U.S. stock market has showcased an impressive ascent, highlighting a rally that has propelled the Dow Jones Industrial Average and the S&P 500 to significant new milestones. This robust performance doesn't come without its reasoning; investor optimism is largely rooted in expectations surrounding pro-business policies from the U.S. government, seemingly signaling the potential for invigorated economic growth and bolstered corporate profits. Furthermore, the anticipation of potential interest rate cuts has continued to encourage inflows of capital into the market, prompting some institutional investors to adjust their year-end and upcoming year’s index targets upward.

Recent economic data has painted a complex picture of the American economy. The consumer inflation metrics, as anticipated, have shown a rebound, consumer spending has seen growth, while the employment market remains relatively placid. According to the U.S. Department of Commerce, the overall Personal Consumption Expenditures (PCE) price index rose by 2.3% year-over-year in October, an increase of 0.2 percentage points from September. Excluding food and energy, the core PCE also saw a year-over-year rise to 2.8%, marking its first rebound since June. In tandem with this, consumer spending increased by 0.4% in October, with the personal savings rate edging up to 4.4%, a slight increase from the previous month’s 4.1%.

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Schwartz, a senior economist at Oxford Economics, noted that consumer spending is largely underpinned by healthy labor demand. Household savings have also shown signs of recovery. The holiday shopping season is set to be quite robust, despite persistent high prices constraining budgets. He cautioned, however, that robust consumer demand combined with persistent service sector inflation could challenge the Federal Reserve's next steps regarding monetary policy easing.

The employment landscape is also showing mixed signals. For the week ending November 23, new unemployment claims dipped by 2,000 to 213,000, the lowest level recorded in six months. Conversely, continuing unemployment claims rose to 1.91 million, marking the highest level seen in three years. This year has witnessed a cooling of the labor market, with the unemployment rate slightly drifting up from 3.7% in late 2022 to over 4%. However, non-farm payrolls are adding over 100,000 new jobs per month, demonstrating that layoffs are not significantly surging.

Schwartz attributed the fluctuating unemployment claims partly to the Boeing strike and several hurricane disruptions. Generally, this increase might imply a deceleration in hiring. Nevertheless, with Boeing reaching a labor agreement and some individuals affected by hurricanes returning to work, November's non-farm employment data is expected to reflect a growth in jobs.

Market adjustments have led to a notable drop in long-term U.S. Treasury yields. The closely monitored two-year Treasury yield fell by 19.7 basis points to 4.27%, while the benchmark 10-year Treasury yield decreased by 21.7 basis points to 4.19%, representing the most significant drop in almost three months. The futures pricing by the federal funds market suggests about a 70% probability that interest rates will be reduced by 25 basis points in December.

Global X’s head of investment strategy, Helfstein, remarked that in-line inflation data is a welcome update for the Federal Reserve, as it implies that the economy is still near full employment with price stability. He also indicated that the trajectory for future rate decreases remains unchanged.

Schwartz added that bond yields have retreated from their peaks, and the market's concerns about tariffs and tax cuts have lessened. The Federal Reserve is not expected to integrate any drastic policy shifts during the upcoming mid-December Federal Open Market Committee meeting. Yet, Schwartz noted that many unpredictable factors remain, including unstable inflation trends and the need to discern noise from signals in recent external shocks to the economy. He expects a reduction of 25 basis points in December, while the inclination to maintain a wait-and-see approach afterwards is increasingly plausible.

Continuing with market trends, investor interest in U.S. equity funds remains robust. In November, the Dow rose by 7.5%, surpassing the 45,000-point mark, with the Nasdaq and S&P 500 also enjoying gains exceeding 5%. This performance has positioned the Dow and S&P 500 for their best monthly results since the beginning of 2024.

As a potential cabinet change looms with the new administration, attention is now fixated on key nominations. The selection of Bessent for U.S Treasury Secretary has fueled speculation about the sustainability of debt levels during his second term, resulting in a relative decline in Treasury yields and increasing market risk appetites. Bessent possesses a distinguished professional history, having collaborated with legendary investors George Soros and Stanley Druckenmiller, positioning him as a favorable candidate for capital markets.

Evercore ISI's research indicated that, given Bessent's deep insight into financial markets and economics—especially considering the government’s need to support the bond market to advance its agenda—his nomination should be well-received by the market. However, the firm noted that this doesn't imply a complete departure from his stances on immigration, trade, and deficits, which might signal a shift toward a more market-friendly milieu.

Funding flows exemplify that investors are persistently channeling capital into U.S. equity funds. The slowdown in bond sell-offs has alleviated concerns surrounding the prospects of growth stocks. Data from the London Stock Exchange Group indicated that investors have purchased U.S. equity funds valued at $12.78 billion, representing a substantial uptick from the previous week’s $3.03 billion in net purchases.

Barclays adjusted its forecast for the S&P 500 index for 2025 from 6,500 to 6,600 points. The firm expressed optimism, stating that macro factors favoring the U.S. stock market will outweigh negatives in the coming year. Moreover, Goldman Sachs and Morgan Stanley predict that the index could reach 6,500 points, buoyed by confidence in sustained American economic growth, enhanced corporate earnings, and anticipated Fed rate cuts.

Year-to-date, the S&P 500 has surged over 26%, putting it on track to achieve its best annual performance since 2021. Remarkably, there have been no declines of 10% or more throughout the year. According to Bespoke Investment Group, since 1928, the S&P 500 typically sees a correction approximately every 346 days; in simpler terms, almost annually.