Introduction to the US Economy
The US economy is nearing the end of a strong year, with the S&P 500 reaching an all-time closing high. However, investors have been lacking the typical evidence they use to gauge the health of the economy due to a 43-day federal government shutdown. This shutdown postponed or canceled key reports, leaving investors without the necessary data to make informed decisions.
Upcoming Economic Reports
The upcoming week is expected to provide a long-anticipated view of the US economy, with a host of delayed employment, inflation, and other data set to be released. The US jobs report for November is due on Tuesday, while the monthly consumer price index, which is closely watched for inflation trends, is out on Thursday. Additionally, a report on retail sales will provide more insight into economic growth.
Impact of Federal Reserve Meeting
The Federal Reserve cut interest rates by a quarter percentage point for a third-straight meeting, seeking to shore up a weakening labor market. However, the central bank signaled that borrowing costs are unlikely to drop further in the near term as it awaits more economic clarity. The Fed’s decision was cheered by investors, but a disappointing report from cloud-computing giant Oracle weighed on the tech sector.
Expectations and Predictions
U.S. payrolls are expected to have climbed by a tepid 35,000 in November, according to a Reuters poll. However, Fed Chair Jerome Powell said that while payrolls have been averaging an increase of 40,000 per month since April, the Fed thinks those numbers are overstated and could instead be an average loss of 20,000 per month. If the jobs report is negative, it could lead to discussions of a recession.
Inflation and Interest Rates
The monthly CPI data comes as inflation has continued to run above the Fed’s target, which could complicate any further Fed easing if inflation fails to cool. Three policymakers dissented from the decision to lower rates, including two who argued rates should have been left unchanged. Morgan Stanley economists expect further cuts in January and April, but if the labor market stabilizes, then future cuts may not come until inflation decelerates.
Market Performance
The S&P 500 is up 17% so far in 2025, pushing its gain during the bull market that began in October 2022 to more than 90%. December is traditionally a positive month for stocks, but investors could seek to lock in year-to-date profits, bringing selling pressure. The approaching holidays also stand to reduce trading volumes, which can lead to exaggerated asset-price moves.
Conclusion
In conclusion, the upcoming week will provide a clearer picture of the US economy, with a host of delayed reports set to be released. Investors will be closely watching the jobs report, consumer price index, and retail sales data to gauge the health of the economy. While the S&P 500 has reached an all-time closing high, the approaching holidays and potential selling pressure could lead to volatility in the market. As the year comes to a close, investors will be looking for signs of a strong finish to 2025.
