Oh yes they will, oh no they won’t

Friday’s reading of the Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures index, which excludes food and energy, came pretty much bang on target. Remembering this data: the September reading, due to the Government shutdown, showed a 0.2% monthly rise, while the annual rate was 2.8%. As the data came in as expected, the likelihood remains that the Federal Reserve will cut interest rates again this week when it meets. As is often the case, it’s not the decision itself but the messaging that comes with it that the markets tend to focus on. After a sluggish start to the week, stocks ended the week building on the substantial gains of Thanksgiving.

The justification for the rate cut is not really about indications of a weakening economy, as S&P Global points out; business activity indicators, such as the ISM surveys and PMI, suggest a robust fourth-quarter GDP growth. The justification for lower rates lies mainly in the labour market, especially after the ADP payroll report signalled a decline in private-sector jobs. During the week ahead, notable US releases include the Q3 Employment Cost Index, November’s federal budget statement, consumer inflation expectations, the NFIB Business Optimism Index, and weekly labour indicators, including initial jobless claims and the ADP employment report—plenty for the bond and equity markets to focus on. Ahead of the Fed meeting on Tuesday, we get the JOLTS job openings for September and October.

As for the UK, Friday is where all the fun and games happen, as we get fresh insights into October’s economic performance. GDP is expected to edge up 0.1%, after a 0.1% contraction in September, while industrial production is seen rebounding by 0.8% following a 2% drop in the previous month. It is worth remembering that all this data was collected ahead of the budget.

Investors’ minds will now start to focus on the year ahead, and as per usual, the consensus amongst strategists is for another positive year. What else are they going to say? The average of the estimates for the S&P is to reach 7,269 by the end of next year. That’s just under 6% above its current level. The range is from 7000 to 8000 for the S&P 500.  As the investment community pencils in earnings growth of around 10% in the year ahead, that would suggest, on average, that strategists expect a modest de-rating of the Index. Other debates will focus, for example, on the portfolio balance between growth and value, and on whether one continues to back the tech sector. Does one look for examples in some of the more value sectors, such as consumer staples, which have lagged the broader market? These are the sorts of questions investors will be debating in the coming weeks, and many others.