The Gulf Time Newspaper One of the finest business newspapers in the UAE brought to you by our professional writers and editors.
Bloomberg
Stock-market investors are hoping for a strong finish to a chaotic year.
A less hawkish Federal Reserve and encouraging inflation data could unleash a mega-rally in December, which has proved to be a strong month for the stock market over the past 70 years. This year, though, it may get off to a late start: With all the twists and turns heading into 2023, even bulls may sit on the sidelines until the release of the next key inflation report on December 13.
Fed Chair Jerome Powell provided some optimism by signalling that the central bank will slow the pace of interest-rate increases. Following his comments, the S&P 500 Index rallied 3.1% to leap over its 200-day moving average — a widely watched technical indicator used to gauge longer-term price trends — for the first time since April. That helped the benchmark end the week up 1.1% as traders assess a surprisingly strong jobs report and the overarching risk of rate hikes pushing the US economy into a recession.
The potentially strong finish for equities will cap a bruising year of volatility, as the Fed’s realisation that inflation wasn’t temporary put an end to the shortest bull market on record. Stocks then plunged into a bear market as the central bank hiked rates to tame decades-high inflation, only to rebound in October when inflation started to cool. That’s left the S&P 500 down less than 15% for 2022.
This tug-of-war between bulls and bears will continue over the next eight trading sessions as the Fed enters its quiet period before its final meeting of 2022, which takes place a day after the latest consumer price index is released on December 13. Few economic announcements have mattered more this year than November’s inflation reading, given the Fed’s aggressive campaign to tamp down soaring prices.
If the market rebound since mid-October holds through December, the S&P 500 would end an otherwise tumultuous year for global money managers on a high note. The S&P 500 is up 14% since the end of September and on pace for its best fourth quarter since 1999.
The stock market is forward looking, with equities discounting what’s going to happen at least six-to-12 months from now. History suggests US stocks climb once elevated inflation peaks, with the S&P 500 delivering double-digit gains one year later. That optimism has helped juice the latest rally.
It has also made bulls encouraged that US share prices are poised for strong gains into the end of the year.