S&P 500 Forecast: SPX Sees Gains Following Inflation Data Release

Market Overview

US Futures

Dow Futures: Up 0.19% at 44,342

S&P Futures: Up 0.40% at 6,061

Nasdaq Futures: Up 0.64% at 21,508

European Markets

FTSE: Up 0.4% at 8,310

DAX: Up 0.01% at 20,349

• US stocks are buoyed following positive CPI data, which supports rate cut expectations for December.
• The US CPI registered a 2.7% increase year-over-year, slightly up from 2.6% in the previous month.
• Macy's shares dropped 10% after the company revised its profit forecast downward.
• Oil prices have increased for three consecutive days.

CPI Update – Rate Cut Anticipation

U.S. markets are poised for a positive opening following inflation data that met expectations, strengthening predictions for a Federal Reserve rate cut next week.

The latest reports show a 2.7% increase in the U.S. CPI for November, aligning with analysts' projections and slightly higher than the 2.6% seen in October. Monthly CPI growth was reported at 0.3%, consistent with forecasts and up from the previous 0.2%.

Core inflation, which excludes volatile categories such as food and energy, climbed by 3.3% year-over-year, matching economists' expectations.

This data reinforces market predictions for a 25-basis point interest rate cut by the Federal Reserve in December. Before the data release, market forecasts indicated an 85% probability of a cut, which has now increased to 98%.

Since commencing its rate reduction strategy in September, the Fed has cut rates by a total of 75 basis points. Market forecasts suggest that the central bank's interest rate could reach 3.4% by the end of 2025, representing a further reduction of 125 basis points.

As confidence in rate cuts increases, equities are seeing higher demand, while the U.S. dollar remains relatively stable.

Corporate News

Macy's is expected to open 9% lower due to a downward revision of its fiscal year earnings forecast. The retail giant anticipates earnings per share (EPS) between $2.25 and $2.50, lowered from the previous guidance range of $2.34 to $2.69.

Duolingo shares have dipped by 2% following a downgrade to neutral by Bank of America.

In contrast, GameStop’s shares rose by over 3% in premarket trading after the company reported an unexpected profit. GameStop recorded a net income of $17.4 million in Q3, a significant turnaround from a net loss of $3.1 million in the same quarter last year.

S&P 500 Technical Analysis

The S&P 500 index has recently pulled back from its all-time high of 6,100, finding support at 6,030, which was the high point for November. Buyers are expected to target a continuation of the bullish trend, aiming to break through the 6,100 resistance for new record highs. Support levels are identified at 6,030 and 5,950, in alignment with the rising trendline. A decline below 5,830 would indicate a lower low.

Forex Market Insights

The U.S. dollar is gaining traction for the fourth consecutive day as traders digest the latest U.S. CPI data, which aligned with forecasts and offered minimal surprises. Following the data release, the USD has shown little movement.

EUR/USD remains stable as the market anticipates tomorrow's European Central Bank (ECB) rate decision, with expectations of a 25-basis point cut on Thursday, alongside potential rate reductions totaling 150 basis points by the end of next year.

In the USD/CAD pair, there is a slight decline as market participants await the Bank of Canada (BoC) rate announcement later today. The consensus anticipates a 25-basis point cut, albeit with some speculation regarding the possibility of a 50-basis point cut, adding an element of uncertainty that could lead to market volatility.

Oil Market Update

Oil prices have risen for a third consecutive day, fueled by optimism surrounding China's plans to implement looser monetary policy in the upcoming year to stimulate economic growth.

This week, China announced it would adopt less stringent monetary measures for the first time in 14 years, which may enhance consumer spending and boost oil consumption.

Additionally, OPEC's monthly report is anticipated, which will provide valuable insights into the supply and demand dynamics in the market.

Recent API data indicated a rise in U.S. crude inventories by 499,000 barrels last week, while gasoline stocks increased by 2.85 million barrels. The EIA inventory report is expected later today.