Stocks started the year with a modest pullback, then rebounded in the second half of the month before retreating on the last trading day following the Fed’s interest rates decision. The S&P 500 and the Dow advanced 1.7% and 1.3%, respectively, while the technology-heavy Nasdaq underperformed by returning 1.0% for the month. 

Stocks continued their winning streak in December on lower-than-expected inflation data, market expectation of interest rate cuts early in 2024, and optimism that the U.S. economy will be able to avoid a recession. The S&P 500 and the Dow advanced 4.5% and 4.9%, respectively, while the technology-heavy Nasdaq rallied 5.6% for the month. The recent runup in equity prices is primarily due to expectations of earlier interest rate cuts, rather than a significant improvement in corporate earnings expectations.

Stocks rallied in November on slower-than-expected inflation data, falling Treasury yields, and speculation that the Fed will be able to pull off a soft landing. The S&P 500 and the Dow advanced 9.1% and 9.2%, respectively, while the technology-heavy Nasdaq rallied 10.8% for the month. Markets seemed to take the month’s data as an indication that the Fed will likely cut rates aggressively soon (a full percentage point cut by the end of next year is currently forecasted by the futures market). However, we do not expect rate cuts until the second half of 2024.

US stocks ended up lower once again in October, with the S&P 500 and Dow dropping by 2.1% and 1.3%, respectively, while the technology-heavy Nasdaq lagged, losing 2.8%.

Summary: US stocks ended September with their biggest monthly decline since last December 2022, with the S&P 500 and Dow dropping by 4.8% and 3.4%, respectively, while the technology-heavy Nasdaq lagged by losing 5.8%.   The expectation of "higher for longer" interest rates put pressure on markets. With a hawkish hold in September's FOMC meeting and hawkish commentary from several Fed policymakers, investors are worried that a pivot toward lower rates will not happen any time soon. The US long-term interest rates surged due to the uncertainty in the macro landscape.

Summary: Stocks retreated in August, with the S&P 500 declining by 1.6%, while the Dow and the technology-heavy Nasdaq both lost more than 2%. Despite the generally positive economic data in the US, there have been challenges recently, partly due to the upswing in long-term yields. Also, corporates delivered soft Q2 earnings growth, reflecting a decrease in demand and softening pricing power with persistent margin pressure.

Equity Markets Still Under Pressure from Rising Interest Rates

Equity markets were under selling pressure in December, fighting headwinds from rising interest rates and a looming economic downturn. The S&P 500 finished the month down 5.8%, and the Dow lost 4.1%. The tech-heavy Nasdaq lagged significantly, losing 8.7% for the month. Within the S&P 500, the typically defensive sectors, including health care, utilities, and consumer staples fared best, while weakness in Tesla weighed heavily on the consumer discretionary sector.

Fed Signals Slower Rate Hikes, Easing Inflation and Boosting Markets

Equity markets gained in November with signals that the Fed might slow its pace of interest hikes and a slew of better-than-expected earnings reports in the retail and technology sectors. Stocks saw broad gains on the last trading day of the month, with the S&P finishing the month up about 5.6%. The Dow gained 6%, while the tech-heavy Nasdaq lagged slightly, adding 4.5% for the month.