It was another positive week for the market. The S&P 500, which came close to 4,100 in October, closed above 4,500 on Friday. The gains were at least partially driven by fear of missing out on further gains during what is historically a strong time of year for the market.
Mega-cap stocks contributed to index performance, but the broader market experienced more robust buying interest. The market-cap weighted S&P 500 rose 2.2% this week while the Invesco S&P 500 Equal Weight ETF (RSP) jumped 3.4%. Also, the Vanguard Mega Cap Growth ETF logged a 2.1% gain. The rate-sensitive S&P 500 sectors registered some of the largest gains, but all 11 sectors traded higher this week. The real estate (+4.5%), financials (+3.3%), and utilities (+3.0%) sectors were standouts in that respect. The consumer staples (+0.6%) and energy (+0.9%) sectors were the only ones to gain less than 1.0%.
Most of this week’s gains followed the October CPI (Consumer Price Index) report on Tuesday, which corroborated the notion that the Fed might be done raising rates. That report, along with the October Producer Price Index, the October Retail Sales, the weekly initial jobless claims, and the October Housing Starts data, all seemed consistent with a soft-landing scenario for the economy. The fed funds futures market priced out the probability of any additional rate hikes by the Fed, and now discounts a 61.7% probability of the first rate cut in May 2024.
Treasury yields took a sharp turn lower in response to the data and the idea that the Fed is done raising rates. The 2-yr note yield fell 15 basis points this week to 4.90%. The 10-yr note yield declined 19 basis points to 4.44%.