US Stocks Mixed as S&P 500 and Nasdaq Hit New Closing Highs, Fed Rate Cut Expectations and Economic Data Spark Market DivergenceUS stocks closed mixed on December 6th. Wind data showed the Dow Jones Industrial Average fell 0
US Stocks Mixed as S&P 500 and Nasdaq Hit New Closing Highs, Fed Rate Cut Expectations and Economic Data Spark Market Divergence
US stocks closed mixed on December 6th. Wind data showed the Dow Jones Industrial Average fell 0.28% to 44,642.52, while the S&P 500 rose 0.25% to a new closing high of 6,090.27, and the Nasdaq Composite gained 0.81% to a new closing high of 19,859.77. For the week, the Dow fell 0.6%, the S&P 500 gained 0.96%, and the Nasdaq surged 3.34%.
A significant rally in the cryptocurrency market was also a major highlight. Bitcoin reclaimed the $100,000 mark, boosting cryptocurrency-related stocks. Canaan Inc. soared over 35%, BitDigital rose over 9%, and Coinbase increased by over 7%.
Chinese stocks listed in the US (Chinese ADRs) performed strongly with the Nasdaq Golden Dragon China Index up 0.98% for the day and 2.15% for the week. Many Chinese stocks saw significant gains, including Youdao (over 6%), Alibaba and JD.com (both over 2%), iQiyi, and NetEase (both over 1%). However, not all performed well, with Gaotu falling over 4% and New Oriental declining over 1%.
Despite the positive market sentiment, underlying risks remain. Michael Hartnett, a strategist at Bank of America, warned earlier in the day about overheating in both the US stock and cryptocurrency markets. Data shows the S&P 500 price-to-book ratio surged to 5.3x in 2024, nearing the 5.5x level seen at the peak of the 2000 tech bubble. Hartnett suggested that if the S&P 500 approaches 6,666 (approximately 10% higher than current levels) by early 2025, the market could face a risk of "over-extension."
The AI boom is undeniably a key driver of market optimism. Fueled by AI, the S&P 500 is up approximately 27% this year, its best annual performance since 2019. Furthermore, Trump's support for cryptocurrencies contributed to Bitcoin briefly surpassing $100,000 this week, pushing its market capitalization above $2 trillion at one point.
Although the market displays optimism, Bank of America's bull-bear indicator suggests global investors haven't reached irrational exuberance. Several institutions believe the near-term upward momentum in US stocks is limited.
Guozheng International points out that while a December Fed rate cut is widely expected, Fed Chair Powell recently noted that the US economy and inflation are stronger than anticipated in September. This suggests the December statement might signal a downward revision of the 2025 rate cut trajectory. Guozheng International advises investors to monitor next week's CPI (Consumer Price Index) data, as any deviation could trigger a correction in the US stock market, given current valuations and investor sentiment suggest a mild correction is possible.
Huafu Securities echoes this sentiment, believing that the relatively high valuations and the oversized market capitalization of leading tech companies limit near-term upward momentum in US stocks. As of late November, the S&P 500's P/E ratio (FY1) stood at 25.3x, significantly higher than the 10-year median, with most sectors exhibiting high valuations. Market concentration is also a concern, with the top ten companies accounting for over 35% of the index, the highest level in nearly 20 years.
The better-than-expected November non-farm payroll report added further complexity. The report showed 227,000 jobs added, exceeding the median forecast of 200,000 and representing the largest increase since March. October's figure was revised upward from 12,000 to 36,000, with a combined upward revision of 56,000 for September and October. The unemployment rate rose to 4.2%, higher than the expected 4.1%, compared to the previous 4.1%.
This unexpectedly strong jobs report increased bets on a Fed rate cut. Wind data showed the US Dollar Index initially plummeted after the release, before quickly forming a V-shaped recovery at 105.420.
Market participants generally anticipate a rate cut this month, followed by a slowdown in rate reductions. Despite the slight rise in unemployment, underlying labor demand remains robust. The CME Group's FedWatch tool showed the probability of a December rate cut jumped to 91% after the data release, up from 71% the previous day.
However, the latest data has prompted differing interpretations of the Fed's future policy direction on Wall Street. Florian at Lombard Odier Investment Managers believes the report shows the economic trend remains healthy, making a December rate cut possible, but the normalization process is nearing its end, and future interest rate policies may have limited impact on the inflation cycle, potentially stabilizing the dollar. Michael Brown at Pepperstone predicts a 25-basis-point rate cut this month, supported by continued labor market normalization.
In contrast, Scott Wren at Wells Fargo Investment Institute suggests that while a December rate cut is still expected, the 4% average hourly earnings growth indicates significant wage pressures, making it difficult to achieve the inflation target in the short term.
In summary, uncertainty remains regarding the Fed's policy path, and the latest employment data may exacerbate internal policy divisions within the Fed. Earlier this week, Fed Chair Powell suggested the Fed could be "a little more cautious" on rate cuts, citing a "very good" US economy and inflation slightly above previous expectations. Meanwhile, Fed Governor Bowman emphasized that inflation remains the priority in decision-making.
In the precious metals market, expectations of a 25-basis-point rate cut this month pushed gold prices slightly higher. February 2025 gold futures on the COMEX settled at $2,659.60 per ounce, up 0.44%, although the main contract for the week ended down 0.80%.
(Note: This article does not constitute investment advice.)
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