Market Analysis: US stocks face uncertainty as latest data sends mixed signals

US stocks made a swift recovery on Friday as the PCE index showed smaller-than-expected increases in November, easing some of the concerns about inflation. Earlier in the week, the Federal reserve decided to cut rates by 25 basis points as widely expected, but the messaging from the central bank was very hawkish, effectively lowering the amount of rate cuts predicted for next year. This caused the major US equities to close over 3% lower on the day. 

S&P 500 daily chart

Past performance is not a reliable indicator of future results.

Investors remained shy on Thursday as they digested what higher rates would mean for the economy, but Friday’s PCE data was enough to cheer the mood and reignite hopes about the possibility of lower inflation next year, which would allow the Fed to cut rates faster. 

The positive momentum has attempted to spill over into this week, but the gains have been limited so far. The avoidance of a US government shutdown over the weekend has also helped ease some of the negative pressure on stocks. United States President Joe Biden has signed into law a bipartisan funding bill that averts a government shutdown, days after Congress was thrown into turmoil after President-elect Donald Trump rejected an initial deal.

With the major central bank meetings out of the way, this week is very light on the data front as we wind down the year heading into the holiday period. The outlook seems slightly uncertain at this point with investors likely to remain cautious over the coming weeks until more clarity can be had on the data and rates front. For now, US equities remain strong despite the recent corrections as Trump’s policies are expected to be pro-business and therefore enable better returns. That said, the risk of weakening international relations on the back of increased tariffs could shake the US economy and ramp up inflation, which would weigh on equities.