What’s Driving Market Sentiment?
Traders appear optimistic about cooling inflation and the Federal Reserve’s dovish pivot. The Fed’s recent rate cut, coupled with softer inflation readings, is easing concerns about potential rate hikes in 2025. Investors are increasingly betting on fewer rate cuts next year, with CME’s FedWatch tool now pricing in a year-end rate range of 4% to 4.25%.
The market is also entering the “Santa Claus rally” period, historically associated with gains in the final days of December and early January. The S&P 500 has averaged a 1.3% rise during this stretch since 1969.
Can the Rally Hold into the New Year?
While bullish momentum persists, questions linger over whether U.S. stocks can maintain record highs. Valuation concerns and broader economic uncertainties could temper gains. However, as holiday trading volumes remain thin, megacap strength may continue to guide indices higher through year-end.
Short-Term Forecast
The market outlook leans bullish as investors digest favorable inflation data and Fed policy signals. However, traders should watch for potential volatility, especially in tech and discretionary sectors, as the year closes.
More Information in our Economic Calendar.