November’s Stock Market Optimism Amid Fed Rate Cut Expectations

As November closes out, the U.S. stock market is seeing a continued wave of optimism, marked by rallying Nasdaq and S&P futures on Wednesday morning. This positive atmosphere is fueled by a rising belief in the economy's resilience and growing expectations that the Federal Reserve will pivot to rate cuts in mid-2024.

Despite a robust third quarter, economists foresee a softening in economic growth during the current quarter, influenced by the Fed's rate hikes, ongoing supply chain disruptions, and the war in Ukraine. Michael Feroli, Chief U.S. economist at JP Morgan, notes, "We expect GDP growth to slow to 2% in the fourth quarter, down from 3% in the third quarter. The Fed's aggressive rate hikes, supply chain disruptions, and the war in Ukraine are all contributing factors."

Anticipation surrounds the Fed's potential shift in stance towards rate cuts in mid-2024. Feroli explains, "We believe the Fed will initiate rate cuts in mid-2024, gradually lowering the fed funds rate by 75 basis points by the end of the year. The Fed's primary concern is to bring inflation under control, but they are also mindful of avoiding a recession."

This anticipation has injected optimism into the stock market, with investors hopeful that the Fed can orchestrate a soft landing, preventing a recession. "The market is anticipating a soft landing," says Feroli. "And based on current economic indicators, it appears achievable."

Wednesday morning saw Nasdaq and S&P futures rallying, indicating a strong opening for the stock market. The Nasdaq Composite rose by 0.7%, and the S&P 500 gained 0.6%. This robust performance reflects investor confidence in the stock market's trajectory, with economic news and the Fed's monetary policy decisions continuing to shape market sentiment in the coming days.

Market analysts weigh in on the situation. Art Cashin, UBS's Director of Global Trading Floor Operations, observes, "The market is looking for signs of the Fed easing its monetary tightening, and any indication of that could send stocks higher." Ian Shepherdson, Chief U.S. Economist at Pantheon Macroeconomics, comments, "The economic data has been mixed, but overall, it suggests that the economy is still growing, albeit at a slower pace." However, caution is advised by Brad McMillan, Chief Investment Officer at Commonwealth Financial Network, who notes, "The market is pricing in a soft landing, but there are still risks, such as a further escalation of the war in Ukraine or a deeper slowdown in China's economy."

As the month concludes, the U.S. stock market remains a dynamic landscape, shaped by economic expectations and the delicate dance between growth and the Fed's monetary policies. Investors continue to navigate these waters, fueled by optimism yet aware of potential risks on the horizon.