Wall Street: December outlook - US markets ride dovish momentum

US stock markets kicked off a new month in style, as fixed income and equity markets reacted to the more dovish elements within Fed chair Jerome Powell's speech, including rates being "well into restrictive territory."

Before we look at what the year's final month might bring, it's worth revisiting some of November's key highlights.

• US two-year note yields fell 41 bp from 5.09% to 4.68%
• US 10-year note yields fell 60bp from 4.93% to 4.33%
• US rates markets are now pricing 125bp of Fed rate cuts in 2024
• The Nasdaq gained 10.67%
• The S&P500 gained 8.92%
• The Dow Jones gained 2898 points or 8.77%

Can the November rally extend into December?

The correlation is clear. US equity markets ripped higher in November, driven by falling rates. Behind the fall in rates was a dovish pivot by the Federal Reserve and a patch of cooler data. Rarely, if ever, has a central bank executed such an exquisitely timed pivot.

With November's astonishing moves as the starting point for December, the risk-reward of expecting more of the same has reached a more extreme point. While inflation data has been cooler in recent weeks, the market will want to see labour market data this week to support the cooling narrative and another leg higher in equities into year-end.

What is expected from Jolts and Non-Farm Payrolls data?

JOLTS Job Openings – The market expects job openings to decrease in October to 9.3 million from 9.55 million in September. NB While considered an accurate gauge of the labour market, JOLTS runs one month behind NFP.

Non-Farm Payrolls - The market expects a gain of 180,000 jobs in November, up from 150,000 in October. The unemployment rate is expected to hold steady at 3.9%, and average hourly earnings to ease to 4% YoY from 4.1% in October.

If either of these job numbers is much hotter than expected, it will likely cause the rates market to have second thoughts around the timing of Fed rate cuts, with the first cut currently fully priced for May.

US unemployment rate chart

S&P 500 technical analysis

The S&P 500 remains the only one of the three key indices yet to break above its year-to-date highs.

While we remain bullish into year-end, we would not contemplate opening fresh longs at these levels. Instead, we would prefer to use dips back towards support at 4450/30, in anticipation of a retest and break of the July 4634.50 high. Above the 4634.50 high there is blue sky towards the November 2021, 4740.50 high, followed by the January 2022, 4808 high.

Aware that a sustained break below the support of the 200-day moving average at 4312 would warn that the rally has run its course, and that a deeper pullback is underway.

S&P 500 daily chart

Nasdaq technical analysis

The Nasdaq has followed the road map to perfection in recent months, bottoming as expected in the 14,200/14,000 support zone, before a stunning recovery to new highs.

Although we remain bullish into year-end, we would not contemplate opening fresh longs at these levels. Instead, we would prefer to use dips back towards support in the 15,700/450 area in anticipation of a push towards 16,400/500.

Aware that should the Nasdaq see a sustained break of support at 15,450, it would warn that the rally has run its course and that a deeper pullback is underway towards the 200-day moving average at 14,450.

Nasdaq daily chart

• _{Source: Tradingview. The figures stated are as of 4 December 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}