Early this morning, futures indicate we’re likely to see a modest retrenchment in the major market averages when equity markets begin trading later today. Both the S&P 500 and the Nasdaq Composite closed at fresh records after hitting intraday highs yesterday. While we suspect many are enjoying the continued strength in the market, the 6% move in the S&P 500 and the more than 7% climb in the Nasdaq Composite since the end of October have the market, depending on the indicator cited, once again approaching overbought levels. While relative strength index levels are still below 70, the short-term S&P 500 oscillator is flashing overbought. Other indicators, such as the Citibank Panic/Euphoria model and the Fear & Greed Index, indicate headiness in the market.This comes just as investors will parse November economic data that will help determine if the Fed will deliver another rate cut on December 18. Comments yesterday from Federal Reserve Governor Christopher Waller captured that rather well. While Waller said he is currently leaning toward another rate cut in the next few weeks, he admitted that position could change depending “on whether data that we will receive before then surprises to the upside and alters my forecast for the path of inflation.”While the October PCE Price Index data joined other October inflation data in showing inflation remained sticky, yesterday the November Prices component in ISM’s November Manufacturing PMI tumbled to one of its lowest levels in the past year. A positive development, but we’ve seen fluctuations like this in past inflation data. Meanwhile, November new order activity in the manufacturing sector hit its highest level since March, while employment in the sector performed better than it has in the last several months.Inputting those figures into the Atlanta Fed’s GDPNow forecast kicked out a 3.2% figure for the current quarter. While the market will look at comments from Fed Governor Adriana Kugler and Chicago Fed President Austan Goolsbee today, tomorrow’s November Service PMI data from ISM mixed with the ADP’s November Employment Change Report will be the next Fed rate cut puzzle pieces we get. If they confirm or build on the strength found in the latest GPDNow figures, the market will need to question the odds of a Fed December rate cut.That brings us back to our comments above about the market being frothy. We’ve discussed many times over the last several quarters how it doesn’t take much to knock the market off its high horse at times like these. Once again what’s good news for the economy is likely bad news for rate cuts. Should the upcoming data shift rate cut expectations to no-go from go, ripple effects are likely to be seen in more interest rate-sensitive parts of the economy, the dollar, and Treasury yields.In terms of our AI and Digital Infrastructure models, after tonight’s market close, we have quarterly results from Salesforce (CRM) and Marvell (MRVL). We’ll also be eyeing results from Okta (OKTA) for our Data Privacy & Digital Identity model.More By This Author:Nvidia’s Guidance Weighs On Equity Futures S&P 500 Nears Overbought, Fed Heads & Inflation On DeckWill The Fed Kill The Trump Trade?
