Stocks And Crypto Ride Optimism, But November CPI Could Be The Ultimate Market Test, Investors Warn

In anticipation of the year-end, investors are eyeing a potential rally in stocks and cryptocurrencies, driven by lower interest rates, decreasing inflation, and rising corporate profits. However, the upcoming release of the November consumer price index (CPI) data on Wednesday could significantly impact the Federal Reserve’s decision on a possible interest rate cut in December.

What Happened: The current economic environment is favorable for risk assets such as stocks and cryptocurrencies. Thomas Hainlin, senior investment strategist at U.S. Bank Asset Management Group, pointed out that the S&P 500 Index and Nasdaq Composite reached record highs last week, while Bitcoin BTC/USD surpassed $100,000 for the first time, MarketWatch reported on Monday.

Jay Hatfield, CEO of Infrastructure Capital Advisors, observed a shift in sentiment towards a December rate cut. Fed fund futures traders are now pricing an 85% chance of a 25 basis point cut, up from 71% a day earlier. However, the CPI data could alter these expectations significantly.

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Gennadiy Goldberg from TD Securities stressed that a higher-than-expected core CPI reading might lead to a reassessment of the Fed’s December meeting plans, potentially reducing the likelihood of a rate cut.

Why It Matters: The University of Michigan’s Consumer Sentiment Index recently hit a seven-month high, indicating improved economic conditions but also highlighting concerns over rising near-term inflation expectations. This sentiment could influence consumer behavior and spending, impacting the broader economy.

Additionally, economist Steve Hanke has dismissed fears of inflation spiking, attributing future inflation trends to Federal Reserve policies rather than political factors. He anticipates inflation to continue its downward trend, falling below the Fed’s 2% target by 2025, which could further affect market dynamics and the Fed’s policy decisions.

Meanwhile, as per Benzinga Pro, the year-to-date(YTD) returns of SPDR S&P 500 ETF Trust SPY which tracks the S&P 500 closely, has been 28.60% while the YTD returns of Invesco QQQ Trust, Series 1 QQQ has increased by 30.77%.

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Disclaimer: This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.

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